saabraa

A: Have Gun Will Travel B: Mickey Mouse Club 20: Wyatt Earp

The section 402(g) limit is $15,000 for all 3 plans. If there had been a 457(b) plan in the mix, then a second $15,000 would be a possibility

I agree that statutory employees, other than certain life insuranse salespersons, can sponsor their own plan. I don't immediately know of any glitches.

You're correct; the $10,000 can be withdrawn without taxes or penalty. I don't know about the negligible fee part; it's probably out there somewhere.

The custodian/trustee could have fees for withdrawing/closing the account. Contributions and earnings are liquid. Once withdrawn you don't have to pay anything back. In general, there will never be any tax when withdrawing your own contributions. The glitch comes in if you have conversions. That is, you had money in a traditional Ira and then rolled it to a Roth, which requires payment of regular tax but not the additional 10% income tax for early distribution (referred to by many as a penalty tax). The glitch saga continues if you withdraw any of the converted contributions sooner than 5 years from when you first opened a Roth. At this point, there could be a 10% tax, even though we're talking about after tax converted money that's not subject to regular income tax anymore. There are exceptions to the 10% tax---the same list as for a traditional Ira, such as age 59 1/2, certain medical expenses, purchase of "first home," and a couple others. Your money is considered to exit all your Roths aggregated and in the following order: First comes your regular contributions; when you've used them up then comes the converted amount. Finally we get to the earnings, which could potentially be subject to all the taxes. Further details are in the regulations, which are written in handy question and answer format. You can google 1.408A-6 and look at the first hit.

I can't readily find a cite for that. I'm thinking it's one of those times where there's nothing against it; therefore you can do it. Is there some particular reason you're thinking there might be a different rule for the self employed? I don't necessarily see a problem with the 1040 having a deduction that's $88,000. DB plans might often yield a 1040 deduction that big. Worst case scenario would be the IRS questioning it, and the 1040 filer would have to correspond back to them to explain.

Section 415(A)(2)© says that the basic 415 limits apply to 408(k) (SEPs). I don't know of anything that directly says a SEP is a DC plan (there are a couple of implied references), but it's unlikely anyone will try to call it a DB plan.

Yes, he can get $44,000 from each of the SEPs.

Yes, can do 403b but not 401k

In most cases, it will be the lesser of 25% of comp or $44,000. Can't remember if elective deferrals reduce comp in a SEP; I think they do. If it's a SARSEP (one that existed prior to 1997), then the limit is potentially increased for catch up contributions.

I'm not Carol, but we're saying the 404(a)(7) limits apply to the profit sharing contributions other than the elective deferrals.

Bird, my bottom line agrees with yours. There's no overcoming a conclusion that SIMPLE Ira elective contributions must be deposited before January 31. (You don't even get the 31st, contrary to the court's typo; I believe the 30th was on a Friday in 2002). The code is clear, at section 408(p)(5)(a)(i). Notice 98-4 repeats the deadline; then it SEPARATELY mentions the DOL rule concerning the time when the money can be reasonably segregated from the employer's other assets. ERISA doesn't apply to the 1 person owner only plan in question, though that's ultimately irrelevant here. The plan has failed to 'qualify' as a valid SIMPLE, since it doesn't meet 408(p)(1)(A), which says a SIMPLE plan (Coen bros?) is one that meets 408(p) 3,4, and 5. I agree with the previous thread regarding the due date of the tax return, but that deals with 401k deferrals. The PLR dealt with a 401k plan, not a SIMPLE Ira. The court case facts indicate the employer deposited the contribution into a SEP Ira account. (SEP has a lower contribution limit, in this case) The employer did not present any plan document, but that's irrelevant too.

To me, the Tax Court decision looks solid. The court cited the statute, 408(p)(5)(A)(i), which specifically requires that elective deferrals be deposited within 30 days after the end of the period (12/31). It doesn't mention any exception for the self employed 1 man business. Notice 98-4, Q and A G-5 repeat the rule. The last I heard, IRS's Roger Kuehnle expressed his opinion that the rule definitely applies to the self employed. The last I heard, Mr. Kuehnle is the #1 IRA person at IRS. If anything, it looks as if the IRS was a little generous to allow what looks to be the SEP contribution limit.

Your summary is accurate. However, my 'top of the head' initial response has been modified by subsequent reading. Looking at a vintage 1993 excerpt from BNA portfolio #374, it makes at least 2 more noteworthy points: 1) There's a 'separate share' requirement. It says (citing IRC 404(a)(5) and I.R. reg. 1.404(a)-12(b)(3)), if there's more than 1 participant, the employer takes a contribution deduction only if a separate account is maintained for each employee. BNA says additionally that this requirement will typically be met by a DC plan but not typically by a DB. There's an implication that a 1 person DB does meet the separate share requirement. The discussion says where the separate share requirement is lacking, that's where you can use the increase in accrued benefit to determine the participant's income. (1.402(b)-1(a)(2). Apparently other methodologies are available as options. Still other rules arise with annuity contracts. It appears to me, at first glance, there's no discussion of employer deduction when there's a lack of the separate share aspect. Maybe most of this is moot in your one person plan. There's a discussion of the entire A/B being taxable to the participant if he's a HCE in a plan that's being disqualified solely on account of 410(b) coverage and/or 401(a)(26) participation failure(s). My summary: Hopefully/presumably your situation substantially fits my initial answer. A one person plan meets the separate share rule, so we don't need to get into finer points of increase in accrued benefit versus current year employer funding. If the participant's 100% vested, each year's contribution is taxable on the 1040 and deductible on the employer' 1120 or, for the self employed, 1040. Returning to the 1041 trust tax return, distributions are deductible on that return. So, generically speaking, if a $100,000 corpus earned $10,000 of realized income for a given year, with $9,900 being distributed to the participant, plus a $100 'specific' deduction, then the trust has no tax to pay. A disqualified trust reverts to calendar year status, by the way.

Most qualified plans hold the benefit in trust; this doesn't change when the plan is disqualified. But now it's a taxable trust that files Form 1041 to report taxable earnings and distributions. The trust is still for the benefit of the participant. I agree that the participant realizes taxable income to the extent vested, and the employer is allowed a deduction to the same extent. But to clarify, that's only for the open years and applies to the benefit accrued in each open year. The remainder of the benefit does not become immediately taxable. As it's distributed, it then is taxable on the individual's 1040, without the right to roll it over. So, in some cases, disqualification's bark is worse than its bite. If the corpus is small and the open year contributions are small and the participant is ok with taking the benefit into income as it's distributed, then you can live with a disqualification. It's still a pension plan that, in our example, should look at the 5500EZ requirements to see if a filing is required.

Yes, the SIMPLE can go to a SEP after 2 years. The rollover rules become the same as for a traditional IRA, according to Tax Facts, citing the 1996 Blue Book, p. 141. Notice 98-4 is a good bet for something on this, also.

If the mother herself is one of the employees having a SEP or SIMPLE account, there's a prohibited transaction under IRC 4975 via 408(e)(2), regarding her individual retirement plan. The other employees' SEP/SIMPLE accounts don't have any problem.

The employer MUST include the non Davis Bacon employees. Exactly how does the plan document describe the contribution rate/allocation? Hopefully, it provides for or will be amended to provide for contributions to eligible employees based on hours worked, with a $5,800 cap. If eligible employees were each given $5,800, this could exceed 100% of pay for some people and would also conflict with the deduction limit of 25% per person.

If a SEP covers Davis Bacon employees, then non DB employees of the same employer must also participate, if they're otherwise eligible. All SEP contributions are immediately fully vested. SEP contributions must "bear a uniform relationship to total compensation", except section 408(l) permitted disparity is allowable. So when you say the ctbn is a flat dollar amount, would an example be $8 per hour, with the possibility that different employees earn pay at differing hourly rates? If yes, that violates the uniformity language. I did see nonuniform flat rate ctbns discussed (BNA portfolio?) where the author suggested this is permissible, basically since it's reverse discrimination. I wouln't count on that one without some more substantive cite, which I don't have. My conclusion is that you'd need to stick with prorata allocation---ie everyone gets the same percentage of pay.

You can still do Roth conversion. Once you get to the year that age 70 1/2 is attained, only amounts in excess of the required minimum distribution can be converterd. See final regulations on Roths; I googled "T.D. 8816." Conversions are discussed in Q and A format at section 1.408A-4. Q and A 6 answers the required minimum distribution question.

"Immediately preceding" the current year does not include the current year, for purposes of counting years of eligibility to participate. In your example, presuming the plan requires 3 out of 5 prior years' service, the employee can't participate earlier than for the 2006 calendar year. See proposed reg. 1.408-7(d)(5), which is an example using 1979 as the year in question. The text of the reg. speaks of the employee having had 3 years of service in the 3 years preceding 1979. The reg. still isn't 100% convincing/is not the ideal example, as it hinges on the person attaining the then in effect age requirement of 25 in 1979, but it's close enough.

Yes, based on the facts given. When the year 2005 ended, it was still up to the employer's discretion as to whether there would be a contribution. I'm still unclear whether the answer would change if a written promise to contribute existed at the end of 2005, such as a Board of Directors resolution.

I just looked at the Notice 87-16, A-26. It indicates that in our situation the person will be an active participant for 2007, if a contribution for 2006 is made during 2006. In other words, no twofers.

Notice 87-16 is the main source of the detailed rules. The gist of it for DC seems to be whether or not the contribution was fixed in stone as of the end of 2005 (in our current example). As of 12/31/05, there was no matching required, there was no funding required, and no board resolution that specified a contribution (I believe such a resolution in our case would have resulted in a different answer; i.e. 2005). Check the notice; it gives an example.

2006