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.

Agreed. "How do I terminate my SIMPLE IRA plan? "Step 1: Notify your employees within a reasonable time before November 2 that you’ll discontinue the SIMPLE IRA plan effective the following January 1. "Step 2: Notify your SIMPLE IRA plan’s financial institution and payroll provider that you won’t be making SIMPLE IRA contributions for the next calendar year and that you want to terminate your contributions. "Step 3: You should keep records of your actions, but you don’t need to notify the IRS that you have terminated the SIMPLE IRA plan. "Example: Acme Company decided on November 18, 2014, to terminate its SIMPLE IRA plan as soon as possible. The earliest effective date for the termination is January 1, 2016. Acme must notify its employees before November 2, 2015, that it won’t sponsor a SIMPLE IRA plan for 2016." [Source: https://www.irs.gov/retirement-plans/terminating-a-simple-ira-plan]

Paying you the amount due (or any other amount) directly will not eliminate the error, The employer's only recourse is to make the missing deferral and matching contributions with interest INTO THE SIMPLE IRA PLAN.. The DOL calculator may be used for this purpose. See https://www.askebsa.dol.gov/VFCPCalculator/WebCalculator.aspx. Note that each elective deferral will require a separate calculation (generally from the next business day following the deferral. The matching contributions are due on the due date of the employers's tax return (determined without extensions if that date has passed). So, for a person paid twice a month, 25 calculations are required. You need to open a SIMPLE IRA plan. It will be easiest to establish the SIMPLE IRA at the same institution the employer maintains the SIMPLE IRA plan. Based on what you mentioned, self-correction will take care of most of the issues regarding the IRS. But..... there may be more important issues involving the misuse of plan assets. SIMPLEs are subject to ERISA if there is at least one common-law employee participating in the plan. The DOL does not currently permit the self-correction of late deposits.The employer may need to file an application under the DOL's Voluntary Fiduciary Correction Program (VFCP) to avoid potential civil actions, penalties, and the assessment of civil penalties under Section 502(i) of ERISA. Self-correction is not available under the VFCP. A prohibited transaction excise tax filing -- Form 5330 -- (based on lost earnings) may also be required. The DOL does not address the matching contributions. So, here's what happens. First the missing elective contributions are fixed under the DOL's VFCP program. Then the matching contributions are fixed under the IRS's program. The issues are generally fixed (restoration made) before the DOL application is submitted. Assuming no other issues, the IRS side can be self-corrected. Records of the fix are maintained by the employer. EBSA now provides a model VFCP application form, which is available at https://www.dol.gov/sites/default/files/ebsa/employers-and-advisers/plan-administration-and-compliance/correction-programs/vfcp/model-application-form.pdf. Use of the model form is voluntary but recommended. It is important to remember to include a completed, signed VFCP checklist—a form which is also provided—as the DOL will not process the application without this document. Use of the model form is voluntary but recommended. It is important to remember to include a completed, signed VFCP checklist—a form which is also provided—as the DOL will not process the application without this document--see https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/correction-programs/vfcp/checklist. If you need additional assistance or a referral, please call me. The employer does not really have much of a choice, but to fix the plan. If discovered upon audit or investigation, other considerations apply & it gets very ugly. Hope this helps. ~~Gary

I meant to say that where there are no NHCE, the ADP test does not apply. I misread the facts, In your, case, the 125%-ADP rate would be zero, and all contributions except for the allowable catch-up would be an excess contribution. Will edit my post to remove that portion. Thanks Bird.

It is a SIMPLE plan and a very interesting (not simple) question. Although the term "reasonably expected" is not defined, it does seem to suggest that a determination of eligibility can be made before the end of the year. Absent a clear reading of the law, I do not think the Service would raise the issue unless there were some nefarious intent on the part of the employer making the determination. IMO, the employer should be able to determine who eligible employees are on the first day of the calendar-plan year (rather than on rehire date), assuming the 60-day notifications were made timely, and that this would be the intent of the law. This also begs another query; whether a rehired employee has to be given a special 60-day notifications(?) -- I think not. On the other hand, including the employee is unlikely to cause a problem upon audit; and is likely to be far less costly than a private letter ruling and/or correction under the EPCRS. Hope this helps and I welcome other opinions. From IRS Notice 98-4 "Q. C-1: Which employees of an employer must be eligible to participate under the SIMPLE IRA Plan? "A. C-1: If an employer establishes a SIMPLE IRA Plan, all employees of the employer who received at least $5,000 in compensation from the employer during any 2 preceding calendar years (whether or not consecutive) and who are reasonably expected to receive at least $5,000 in compensation during the calendar year, must be eligible to participate in the SIMPLE IRA Plan for the calendar year."

An employer has up until the due date of its tax return (including extension) to establish a SEP for the prior taxable year. That being said, the IRAs would also have to have been established on or before that date so that the contributions can be made under the plan. Hope this helps.

Yes, top-heavy contributions are required (if the plan is top heavy). Although, the IRS materials you mentioned provides that the catch-up contributions are not taken into account in determining the HCE's ADP rate (which I agree with), only the amount of elective contributions that are in excess of $18,000 (or plan limit if lower) can be treated as catch up contributions. Since no HCEs are participating, owners may make elective contributions up to the catch-up elective contribution limit ($6,000 for 2017). Assuming there are no nonelective contributions to consider, the plan IS top-heavy. Hope this helps. I agree with Mike that the distribution has no bearing.

Sorry, forgot about that. I have entered "UNKNOWN" and have not had any problems. See IRM 21.5.11.3.7 (07-01-2016) regarding the assignment of plan numbers by the sponsor.

So, your saying that there was no deferral election form in force (i.e., it was either terminated or expired two years ago). Therefore, the amounts should not have been withheld and the W-2 need amending. [Just to confirm, there are no other employees for 2014 and 2015, and the funds withheld were in no way set aside.] OTOH, wages were withheld as elective deferrals for two years and reported to the participant and IRS as elective deferrals. I think recharacterization as a loan could be risky for you (as CPA). Amending the W-2's and filing amended tax returns may be simpler and closer to how the Service might perceive this. There are risks, including audit risks, but it seems reasonable under the circumstances. I am not too sure about the election form argument; unless you can keep a straight face . All of the EPCRS/DOL cases that I have been involved with (mostly doing spreadsheets) have involved employers with employees; perhaps others have experiences with "only owner" situations and will have something to add.

You may be looking at the wrong Forms for a SIMPLE. Have you seen the Model VCP Compliance Statement - Schedule 4 SIMPLE IRAs. Form 14568D - Model VCP Compliance Statement - Schedule 4 SIMPLE IRAs. If you are using more than one schedule (model forms), please explain reasons.. Hope this helps.

Hi Austin, sorry this never got a response. No such rules. The Code does not provide for such exclusion in the case of a SEP. Also, the Listing of Required Modifications and Information Package (LRMs) do not contain any language that would allow such rules to apply to a SEP. Hopefully the SEP is (or amended to be) a prototype plan for the year in which the 401(k) plan was maintained. For deduction purposes, the SEP contributions reduce the otherwise allowable P/S-401(k) deduction limit. Probably best to fund SEP first for all eligible employees, then contribute to 401(k). Even though the SEP was fully funded (assume 25%), there may be a tiny amount of wiggle room since the 25% deduction limit under the 401(k) is based on aggregate compensation of all participants. Perhaps only catch-up contributions can be made in the 401(k) if SEP fully funded. Hope this helps.