Gary Lesser

This COLA chart was designed with smaller business owners in mind. In addition to the indexed limits in Notice 2024-80, certain enhanced and additional limits are also shown for smaller businesses (under 26 employees) and larger employers (26 to 100 employees). The footnotes are important and provide additional clarification. Please let me know if you have any suggestions for next year's chart! A rollover chart is contained on page 2. Uploaded new file on February 26 to include the new bankruptcy exemption amount ($1,711,975) for IRAs (excluding most rollovers). Hope this helps. Enjoy, ``Gary COLA_RO_2025-ENHANCED.pdf

Never going to happen. Trustee or custodian MUST issue 1099-R if a distribution (serious penalties for not filing and another for not furnishing**). There was/is no employer and there is no SEP (because employer was ineligible). The distribution s being made from an IRA. His or her argument (basis) is with the IRS. The basis in an IRA is "[g]enerally...zero."" [See Conference Committee General Explanation,* ERISA Sec. 2002, see "Taxation of distributions--in general"] But what about the 6% tax on excess contributions (on amounts over his allowable limits)? The amount contributed over the amount "allowable" as a deduction ($0) may also be subject to the tax on nondeductible contributions (IRC 4972). But see 4972(C)(6) exception "[i}ndetermining the amount of nondeductible contributions for any taxable year, there shall not be taken into account—...so much of the contributions to a ... simplified employee pension (within the meaning of section 408(k)) which are not deductible when contributed solely because such contributions are not made in connection with a trade or business of the employer." Under the EPCRS VCP there could be sanctions. The defect (ineligible employer) is not eligible for SCP. Hope this helps. ~~Gary * See CCH, Pension Reform Act of 1974--Law and Explanation, p. 368. ** See IRC 6721 and 6722.

No. The 4 percent rate is only available to electing large employers. [I.R.C. 408(p)(2)(C)(IV)] Otherwise the "applicable percentage" rate is 3 percent. [See I.R.C. 408(p)(2)(C)(ii)(I), therein lies the answer. go no further.] Hope this helps.~~Gary Pretty dog.

If SEP contributions have been made for the 2024 CY, then a new" SIMPLE IRA/Roth plan will have to wait until next year. [I.R.C. § 408(p)(2)(D)] For 2024, the SIMPLE limit is $16,000 (but increased to $17,600. (SECURE 2.0, §117) Also, additional non elective SIMPLE contributions now permitted up to 10% of first $345k of compensation (not to exceed $5,000). (SECURE 2.0, §116) Next year, additional SIMPLE catch-up contributions allowed if age 60, 61, or age 62. (SECURE 2.0, § 109) Existing model and prototype plans may be used for all of the above (prior to updating and amendment). [I.R.S. Notice 2024-2] If client has been maintaining both a SEP and a SIMPLE IRA/Roth, then client has some problems. Participation in either plan generally results in "active participation" status. Subject to AGI limits, client could still contribute to an IRA or Roth IRA, or a nondeductible IRA. With most trustees/custodians, the same IRA can be used to receive "annual" contributions. I assume you meant contributions are or were were being made to SEP Hope this helps. ~~Gary

It would be more prudent to fix the entire issue at once with interest calculated using the DOL Online VFCP Calculator available at https://www.askebsa.dol.gov/VFCPCalculator/WebCalculator.aspx. If Lost Earnings are paid on the Recovery Date, leave the Final Payment Date blank.

Earnings are all earnings; my 4 cents--From Roth IRA Answer Book Q&A 2:28 "Note. The final regulations provide that net income calculations must be based on the overall value of an IRA and the dollar amounts contributed or distributed from the IRA. The regulations do not permit the calculation of net income on the basis of the return on specific assets (the “anti-cherry picking” rule). [ T.D. 9056, 68 Fed. Reg. 23586–23590 (May 5, 2003); REG-124256-02 (67 Fed. Reg. 48067–48070), as corrected at 67 Fed. Reg. 53644 (Aug. 16, 2002)] However, the anti-cherry picking rules can be avoided by specifically identifying assets to be transferred or purchased into newly established Roth IRAs, one Roth IRA for each grouping of assets (e.g., a particular fund, different stock or market sector groupings). It may still be possible, however, to cherry pick some contributions by characterizing a full or partial contribution or a recent conversion. [ See “How to Cherry Pick Assets for a Recharacterization,” The Retirement Dictionary (Apr. 2018), available at https:// retirementdictionary.com/how-to-cherry-pick-assets-for-a-recharacterization (visited on July 15, 2022)]" {Emphasis added.} From Roth IRA Answer Book Q&A 2:28

For some reason, 80% of the TWB is always a whole number. Using "80% + $1" is friendlier than "80.01 percent," and clearer than "...next highest $1" (which would result in a lower spread - 5.4%).

Puffinator ~~ Here's another calculator in Excel. The spread is determined automatically. The separate tier calculations are shown starting in columns CE. Integration in a SEP is a little bit different since there is a 25% allocation limit. Set for a corporate profit-sharing plan (but plan type can be changed). Hope this helps. ~~Gary 4-STEP INTEGRATION - COR-SAR-2022.xls

Yes, the SEP would be subject to controlled group rules and potentially make the employees eligible in future years. The Loss. A self-employment loss from a separate unincorporated business that is unrelated to the employer adopting the SEP but is owned in part by the same individual does not directly offset the earned income of the employer adopting the SEP. There is no such thing as negative compensation. Nevertheless, the loss will affect the calculation of the individual's self-employment tax, and the amount of that tax will have an effect on the calculation of earned income that can be considered for the plan. Similarly, a loss from an unincorporated business owned by one spouse would not reduce the earned income of an unincorporated business owned by the other spouse. More than one entity may have to be considered in designing a SEP, testing for various limits, and avoiding discrimination initially or in operation. The employers may be related or unrelated, or they may be considered related for some purposes but not all. Many complexities may arise when an individual has an interest in more than one business. For instance, if a sole proprietor has an interest in multiple related or controlled employers, in most cases those employers will all adopt the plan. What if one of the entities was unrelated and did not adopt the plan? Would the deduction for half of the owner's self-employment tax have to be prorated? Possibly, says one commentator. [Lawrence C. Starr, American Society of Pension Professionals and Actuaries (ASPPA), p. 4, ―Compensation Issues: Earned Income, Sole Proprietors, Partners, LLCs, LLPs‖ (2016), available at https://www.asppa.org/sites/asppa.org/files/PDFs/2016AnnualHandouts/WS28 part 1 of 2.pdf (visited on May 5, 2022)] Further, knowing the total amount of all the outside earned income subject to self-employment tax presupposes that the formulas and contributions for each separate employer's nonowner participants are known. That is unlikely (see Q 7:2). When the ―ultra net (after all adjustments) earned income (see Q 7:26) is less than the $305,000 maximum for 2022, the proration of the self-employment tax deduction among multiple entities (to increase the amount of earned income that is considered for plan purposes) would seem preferable to allocating all of the earned income to the entity that adopted the plan. [See Ann. 94-101, §684, Ex. I, 1994-35 I.R.B. 53] At the same time, it should be noted that allocating all of the self-employment tax to a nonadopting entity (to maximize the amount of earned income that is considered for plan purposes) might be considered aggressive. [See Simple, SEP, and SARSEP Answer Book, Q 7:5 (regarding the loss) and Q 7:27, Wolters-Kluwer (2022).]

On second thought (sorry it took so long), I think the rehired employ should be given notices and allowed to participate in the year of rehire. In certain situations, the requirement that specific information, notices, and elections regarding a SIMPLE be given before the beginning of the 60-day period for making or modifying a salary reduction election may be waived. Such situations include instances when an employee becomes an eligible employee other than at the beginning of a calendar year because 1. The plan does not impose a compensation requirement for prior years; 2. The employee satisfied the plan's compensation requirement for prior years during a prior period of employment with the employer; or 3. The plan is first effective after the beginning of a calendar year. [I.R.C. §§408(l)(2)(C)] If any of the foregoing circumstances apply, the eligible employee must be permitted to make or modify a salary reduction election during the 60-day period that begins on the day plan notice is provided to the employee and that includes the day the employee becomes an eligible employee or the day before. By allowing the 60-day period to start on the day plan notice is provided to the employee (instead of on the next day), a rehired employee, for example, will not have to wait until the following year to become eligible. Thus, in this case, the salary reduction election will become effective as soon as practical after receipt by the employer (or, if later, the date specified by the employee in the salary reduction agreement) but any election made by the eligible employee may be modified prospectively any time during the 60-day period. It would be impractical to require notice before the date of eligibility in such situations because that day or the identity of the employee, or both, is not always known. [See SIMPLE IRA plan LRM §§6–7 (Apr. 2005)] These rules would most likely also apply to adopters of model plans. [SIMPLE LRM - attached] Example. Stacy was a participant in her employer's SIMPLE IRA plan until she severed her employment in January 2021. On May 1, 2021, Stacy was rehired and provided notice of the opportunity to make a salary reduction election. The 60-day period that started on May 1 includes the day Stacy became an eligible employee (May 1, 2021). If it were not for the special rule, the 60-day period could not start until May 2 and thus could not include the day Stacy became eligible (May 1) or the day before (Apr. 30). Therefore, Stacy would have to wait until the following year to participate (i.e., the first year for which the 60-day period could include the day she became an eligible employee for that year or the day before). In all cases, the salary reduction agreement should become effective as soon as practical after receipt by the employer (or, if later, the date specified by the employee in the salary reduction agreement), but any election made by the eligible employee may be modified prospectively at any time during the 60-day period. Hope this helps. simpleplan_lrm.pdf

It is a yearly determination as to whether it is "maintained;" so no. A more interesting question might be what happens if the organization ceased to be a non profit. Arguably, it could be resurrected. Should the plan be adopted by the non-eligible employer for such an eventuality. Just speculating.

I don't think the employer has much choice. The employees should hire an "ERISA attorney" familiar with the EPCRS and SIMPLE IRA plans. There are a few! The attorney will force their hand. It could even be done anonymously. A complaint (this strong) to the EBSA would surely be looked into. Now, if an audit comes before the fix, there could be sanctions that could add many thousands of dollars. I say "intentional." Employer may need a criminal attorney before this is all over. Suggest it gets fixed fast. The only alternative would be to treat all contributions as excess contributions. The cost of not fixing this (interest and penalties) could actually be higher than the restoration. But, then, there may be state law considerations (back to square one). Hope this helps.

I am not too sure that the EPCRS 1099-R approach is appropriate given the abundance of Code fixes available. Since a SEP is statutorily required to have a written allocation formula, and because the 25 percent limit must be in the plan, if a contribution exceeds “25% of a participant’s compensation, the entire arrangement will be in non-compliance for the year.” [I.R.M. § 4.72.17.7.1, item 2, Contribution Limits (Oct. 28, 2018). The IRS has a procedures for IRA-based plans found to be in non-compliance and not resolved through a closing agreement. [I.R.M. § 4.71.17.6.1] So, in addition to the cumulative 6 percent tax, 72(t) tax, amended 1040s, there may be (is) a 10 percent tax on nondeductible employer contributions. Although the "excess IRA constitutions generally can be used up, is a special rule about using up amounts from a closed year (not really mentioned) in a correction year. Hope this helps.

The exception to full correction for overpayments of $100 or less applies on a participant basis. See Rev. Proc. 2019-19, Section 6.01(5)(c).

The error seems rather egregious, and IRS approval would seem necessary. Unless the plan is disqualified for failure to fix (doesn't generally happen, but it could), under contributions of non-elective amounts will have to be paid with interest. Interest is usually calculated using the DOL Calculator. Each payment needs to be computed with earning up until the date of correction. The calculator is available at DOL Calculator. See section 6.11 of Revenue Procedure 2019-19. EPCRS 2019-19 It discussed the general fixes for these errors. There is also a Voluntary Fiduciary Correction Program (DFCP) to fix fiduciary errors to avoid civil penalties. As part of a restoration, employer will make elective contributions for those employees who did not receive an opportunity to participate. Missed elective deferrals and catch-ups also have to be made (by the employer) at a special rate. Search for "missed deferral." There may also be prohibited transactions if elective deferrals were not submitted timely. Employer (and perhaps too, the employees) should definitely speak to an ERISA attorney familiar with SIMPLE IRA plan mistakes. ALL years and all issued must be fixed. There could also be state law implications (especially if not fixed). There are all sorts of notices and other things that never happened for which there are penalties. It appears that this is going to cost the employer substantially. In addition to the contributions and earnings there are all sorts of penalties and santions that could apply. It the problems are discovered on audit (before employer gets to fix) there will be huge sanctions imposed.