Gary Lesser

Your approach does work, but the excess percentage could be 3% (rather than 2.7%). If the base percentage is 3%, then the excess percentage (disparity rate) is also 3% (the lesser of 5.7% or the base percentage). If you are using the four step method, and only want to contribute an additional 2.7%, that's fine. It appears that STEP 2 (were everyone gets up to 3% of excess compensation) was not applied (before the 2.7% factor in STEP 3). The four STEP allocation method does not work backwards and is used for allocating a dollar amount among all participants. For 2011, try allocating $11,496 (plus 3% on nonowner compensation). QP-SEP Ilustrator Software may be useful in allocating contributions. http://www.benefitslink.com/GSL/index.html

It does not appear a sole-proprietorship ever ceases to exist while the owner is alive. Thus, there are controlled group issues to consider in the adoption. From your facts, it would appear that the CY entities are on extension for 2011. A net loss from self-employment (if any) would not reduce plan compensation (if any, from corporation). Hope this helps.

The 2002 version is acceptable. Subsequent versions did not require adoption by employers that had adopted/executed the 2002 version of that form.

Me three.

JPOD, I agree with you in principal. I am only questioning whether the amount ($500) amount fits within the DOL’s exemption scheme. PTE 93-1 only allows this “gift” by a disqualified person IF the conditions of the exemption are satisfied (i.e., the incentive must be de mimimis). Also, the DOL specifically rejected tiered schemes that considered more than $5,000 of assets. Also consider, if the amount isn’t a gift then perhaps it is a contribution subject to the annual limits and/or reportable compensation (“other income”). Back to the IRA and PTE 93-1. Because the incentive exceeeds $20 (in value). It has to have its own exemption or exception, and I can find none! A special exemption applies to certain group term life insurance When it was in proposed form, commenters urged the DOL to delete or modify the $10 and $20 limits. “The Department believes that deleting or increasing the dollar limits, or substituting a maximum limit set as a percentage of total plan investment, could have an adverse impact on IRAs and Keogh Plans by creating an incentive for individuals to make IRA or Keogh Plan investments at a particular financial institution for reasons unrelated to the purposes for which such plans are established, i.e. to provide retirement income.” In addition, the DOL stated it “is not persuaded by the comments submitted in favor of this modification. The Department continues to believe that the value of the cash, premiums or other consideration allowed under the exemption must be de minimis to assure that such transactions do not conflict with the basic purpose of IRAs and Keogh Plans which is to provide retirement savings for participants and their beneficiaries.” [see PTE 93-1, Discussion of Comments] http://www.dol.gov/ebsa/programs/oed/archives/93-1.htm In the context of an HSA, the DOL stated in Advisory Opinion 2004-09A that, in certain situations, an HSA provider would not violate the prohibited transaction provisions under Code section 4975© or ERISA section 406 where the HSA provider offers an incentive to individuals for establishing an HSA with that provider by depositing cash directly into the individual's HSA. A cash contribution to an HSA generally would not be considered a "sale or exchange of property" or "a transfer of plan assets" for purposes of the prohibited transaction provisions of the Code. Because the cash contribution goes to the HSA and not the HSA account holder, the HSA's receipt of the cash contribution also would not be considered an act of self dealing on the part of the HSA account holder nor a receipt by the HSA account holder in his or her individual capacity of any consideration from a party dealing with the HSA. It should be noted that PTE 93-1 does not apply to an HSA.

Really, as earnings?! How do you reconcile your thoughts with PTE 93-1? Howver it would be receved (directly or indirectly) it would likely be a PT (at $500). Perhaps if the $500 bonus was made to a charity in the bank's name I could see a way out. Also, (as Peter Gulia mentions). there is not that much of a profit margin to be offering $500.

If the contributions are not made for employees, then the plan needs fixing. The contribuition when made should have been allocated to all eligible employees--it wasn't--an operational defect. That being said, would the IRS allow you to reallocate the existing contribution among IRAs (I DOUBT IT with these facts) or require that you add more money?? If no contributions are made for rank and file employees then, the owner' entire contribution is a nondeductible excess (under the Code). However, the employees may have rights under state law because plan provisions (regarding allocations) were not followed. Best scenario--condider asking trustee to reallocate the funds as they should have been allocated to begin with. Figuring out the allocation compensation for the (entire) year may be difficult and create additional problems if the amounts are not correct. Hope this helps.

Sorry, (6) and (7) were in Section III (post corrected). They are elective deferrals and 402(g) limits elective deferrals. I find nothing to suggest that excess or dissallowed elective deferrals are not within the purview of IRC 402(g).

ABSOLUTELY.

Yes, the annual additions do seem to be (remain) "employee's elective deferreals" and governed by 402(g). [see SARSEP LRM, section II, items (6) and (7).] That being said, I am not sure how they are to be treated for ADP purposes under the 401(k) plan. They can not just be returned. A special Notice is required in accordance with plan provisions; and the participants can remove the disallowed deferrals without penalty (if by April 15 following notification). See SARSEP LRM, section II, items (2) and (3) The SARSEP LRM is available at: http://www.irs.gov/pub/irs-tege/sarsep_lrm.pdf

CAUTION: This hanky-panky strategy may subject the payrol deduction IRA plan to ERISA (and full DOL reporting, including a SPD). DOL regulations provide a safe harbor under which payrol-deduction IRAs will not be considered to be pension plans when the conditions of the regulation are satisfied. Sounds like a conspiracy to avoid reality. The safe-harbor rules require that: 1. No contributions are made by the employer or employee association; 2. Participation must be completely voluntary for employees or members; 3. The sole involvement of the employer or employee organization is without endorsement to permit the sponsor to publicize the program to employees or members, to collect contributions through payroll deductions or dues checkoffs and to remit them to the sponsor; and 4. The employer or employee organization receives no consideration in the form of cash or otherwise, other than reasonable compensation for services actually rendered in connection with payroll deductions or dues checkoffs. [Emphasis added. ] [DOL Reg. § 2510.3-2(d)] The amounts are treated as "wages" on Form W-2 for all purposes. Unless the SEP plan were invalidated (e.g., adoption of a Simple IRA Plan), there is nothing that can be done.

Yes. Effective for taxable years beginning after 2008, and to remuneration paid after 2008, differential military pay is treated as compensation for purposes of the limitations on contributions and benefits under a plan (Code Section 415) and treated as wages for withholding purposes. The final Code Section 415 regulations issued in 2007 generally permitted a plan to treat differential pay as compensation for purposes of that section. [Treas. Reg. § 1.415©-2(e)(4), 72 Fed. Reg. 16,878 (Apr. 5, 2007)] More recent legislation mandates this result. [Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART) § 105; I.R.C. §§ 219(f)(12), 414(u)(12), 3401(h)(12); see also I.R.S. Notice 2010-15, 2010-10 I.R.B. 390] Hope this helps.

Before you can determine whether you have a plan or a reporting issue you must first determine WHY WERE amounts paid on a K-1 to an owner and employee of this corporation? Once realizing that the amounts reported on the K-1 were probably subject to FICA and FUTA and that the "disquised dividends" were in fact compensation, most of the plan problems would be resolved. Unlike the 6% penalty, social security taxes are only paid once. Perhaps, reissuing the reporting forms will be far less costly and more effective. Of course I could be wrong, but this fact pattern comes up all too frequently. Generally, the payment (of compensation) on the K-1 is treated as a dividend and made to avoid social security taxes (and without a valid reason). [see Simple, SEP, and SARSEP Answer Book Q 2:63, and discussion in Q 6:14] Yes, the SEP plan contribution deductions should be claimed on the corportate return. The proposed fix you mentioned would also work, but may be overkill and rather expensive. I would estimate between 35-50% (actually more) would be given away in taxes, penalties, and interest Also, there is a 10% tax for making a nondeductible contribution. The 10% penalty is also cummulative. Oops (at 16%) there is nothing left. Clearly there may be (or is) a better ways to handle this issue. I don't see using the EPCRS when there are comparable (if not better) Code fixes. Hope this helps.

Yes. Designated Roth contributions are allowed in 401(k) plans, 403(b) plans, and governmental 457(b) plans, but not in a SARSEP or SIMPLE IRA plan. [see IRC Section 402A©(1)]

Someone must have some thoughts on whther this is a PT or exempted?

Isn't Corbel wonderful. I actually do agree. I could find nothing that would prevent it and everything tends to support the concept. Thanks for sharing.

Would a qualified 401(k) plan utilizing the Simple plan rules to satisfy deisrimination testing (IRC 401(k)(11) be permitted to adopt a designated Roth contribution program for eletive contributions? Any cites (absent regulations and other quidance that never metions the possibility--that I could find). Thanks for any research leads or dead ends. The why this would be done is not the issue (it probably shouldn't).

Welcome to BL Scarl. So far you have not mentioned any problems. The model document uses gross compensation for allocation purposes, the prototype could use either net (less elective) or total compensation for allocation purposes. Either way, it would appear that ADP testing is based on gross compensation. The plan document is most likely current being adopted in 2002. (unless the IRS approval date on the opinion letter was before 2002). Good luck.

Maybe. From SEP LRM--- To exclude leased employees, the employer would generally have to make a 10% contribution into a money purchase pension plan for all leased employees. The cotributions ahve to be fully vested and none of the leased employees may be excluded from the plan. There are other exceptions/imitations -- see IRC 414(n). Employer would need a prototype plan that provides for such an exclusion or an individually designed SEP.

The best way to look at this is to say that all employees are getting the same percentage, but not in excess of the 25% allocation limit. There are other situations where this would occur (e.g., (1) an integrated plan; (2) after plan has been integrated for 35 years in respect to a participant and some of the participants have less than 35 years and the plan is integrated; and (3) some situations where employees wages not subject to FICA (generally a young son or daughter of owner). Hope this helps.

I believe they would count against the 415 limit. From 1.415©-1(b)(ii)--

Both entities should apply for VCP.

AND (and just in case). as long as owner's ownership in the partnership is 50% or less, Code Section 415(h) requiring aggregation for section 415 limitation purposes only, would not apply. For example, and community property aside, if wife was majority owner (say 51%) of law firm then aggregation under Code Section 415 (only) would apply. Hope this thread has helped.

Can a brokerage firm pay a $500 finder's fee or gift for establishig a new rollover IRA using outside funds? I was under the impression (PTE 93-1) that "The fair market value of the property or other consideration which may be measured by its cost to the financial institution, or the cash received, must not exceed $10 for a deposit of less than $5,000 and $20 for a deposit of $5,000 or more. The conditions of the proposed exemption did not specifically limit the form the premium or other consideration may take." From a recent email from a National Brokerage Firm ("NBF") --{name has been changed} ..... may be subject to IRS Form 1099-MISC reporting requirements should the total value of those items exceed $599 in a calendar year. Although as a percentage it is not that bad, I was not aware of any interpretation that allows gifts of this magnitude (i.=e., over $20). Anyone have any additional information? 20/5000 = .004 500/250000 = .002

Reformatted and expanded the "social security" section to reflect both employer- and employee-paid portions of the taxes.