Gary Lesser

Also as "wages." Employer might opt to offest wages in next/remaining periods.

Good questions. (1) Yes. Code Section 408(D)(i) regarding the "only plan of the employer" rule would not be violated since no contributions are made or benefits accrued for service during the applicable period (in this case 1999). (2) Generally, it will just remain in the SIMPLE-IRA until the participant withdraws amounts. (3) No, but the SIMPLEe becomes a "Complex" (a word I take pride in inventing); thus, all SIMPLE contributions become "wages." The participant should be notified that the SIMPLE contribution was not allowable because of the adoption of the company's p/s plan and that the entire amount should be w/d before the due date of the individual's federal income tax return to avoid the cummulative 6% penalty tax. Since the amount is treated a "wages" by the employer, the penalty for making nondeductible contributions would seem to be eliminated (IMO). Hope this helps..Gary

Yes. An employer claiming a deduction for a profit-sharing plan must take the SEP contribution (which would otherwise be allowable)into account when the plan's plan years both end in the same taxable year of the "employer" maintaining the plans. [iRC 404(a)(3)(A) and 404(h)(2)] [This message has been edited by Gary Steven Lesser (edited 09-06-1999).]

The funds can be transferred from the IRA (that is a part of the SEP) to a traditional IRA (which includes a rollover IRA) once every 365 days. However, the rollover IRA, if from a QP or 403(B) will not be able to be rolled back into a QP or 403(B) if "tained" with "SEP" or regular IRA assets. Does this help? [The brokerage account that holds the SEP assets is an IRA (a "traditional IRA"}] There may be some advantage (e.g., creditor protection, estate planning with a QP sub trust) if the assets are eventually moved back into a QP (if available).

Consider a situation in which a SEP is created for the unionizd employees of a component member of a controlled group. The IRS might rule favorably since there were no highly compensated employees in the group. Consider a plan that appears to violate the uniform allocation rule by the contribution of a specified amount per "hourly-paid" employee (none are HCE and all hourly paid employees only work for the adopting component). Thus, HCEs (ONLY) cd arguably be excluded by classification. But why?

The SIMPLE IRA becomes a "Complex" and all of the amounts put in by employees are treated as wages. The amounts in the SIMPLE IRAs are prohibited excess contributions and should be withdrawn by the employees. It would be nice if the employer provided a notice. State law is another issue.

After 2 years (or upon death or age 59.5) the rollover to an IRA is safe (IRC 408(d)(1), 408(d)(3)(G); Notice 98-4). However, before 2 years (even upon death or after 59.5) it is likely that the payor will treat the distributiuon (to be rolled over) (or even a direct transfer) as a "taxable distribution" (see 1099-R instructions). Will the new trustee accepot it as a rollover? If IRC 72(t)(6) does not apply, then the amount must be timely tansferred into a "individual retirment plan." [see IRC 408(d)(3)(G)(ii)]

No. It is written the way it is because it is the way it is written and is correct. Simply stated, if a controlled group,the form is not available "unless" all employees of the CG are eligible to participate (subect to the age and service requirments and union exclusions, and so on). Am I missing something?

No. IRC 408(d)(3)(G) and Notice 97-6, I-4

Agreed. [iRC Sec. 402(g)(3)]

I do not believe that the effective date of a SIMPLE termination (in a valid plan) can be made any sooner than the next CY. The grace period rules only allow the plan to continue without violating the otherwise applicable rules (in case of merger...).

I don't entirely agree. If a DB was maintained the letter ruling is optional and will only be issued if 415 issues are in fact involved. I don't think it is generally necessary to get a PLR if the actuary states in writing for administrative files that 415 cdn't be exceeded under current law limitations.

Termination isn't necessary if it is just a SEP. Otherwise, amendment and notice to employees if SARSEP. Yes, employer must contribute to have SEP for this year. If SIMPLE adopted this year then SEP is no good and no contributions have to be made (but amounts contributed this year for owners in SEP are PROHIBITED EXCESS CONTRIBUTIONS. [All eligible employees must generally receive uniform contributions based on compensation.]

A Simple 401(k) plan is a 401(k) plan and the money can be transferred between trustees. If the new plan (or new employer's plan) allows for rollovers, then amounts (other than after tax dollars) can be rolled over into the new plan. Why does't the employer just use the non-SIMPLE features of the existing 401(k) plan for next year? Something is wrong here...

I agree with Kathy. But may I shed some light on your inquiry. The employer has to be a union shop 100% so the owners must join the union, but they are not generally eligible to participate in the Union's plan and set up their own in a non-union plan. They are not really union members except for paying dues and getting a card. This is recognized by the IRS. [in real life, the owner's aren't always allowed to enjoy thegenerqal benefits of "union hall" or other benefits (credit union, layoff benefits, and so on).

I don't entirely agree. If the SIMPLE goes bad because of the 401(k) then the amounts in the SIMPLE are excesses and to avoid the 6% penalty must be removed (with gain) before return due date, or after due date (with penalty, and my best guess is no gain). Amount can not be treated as an IRA contribution ever. The law itself does not treat the SIMPLE as a traditional IRA after 2 years. The money would have to be removed in a correcting distribution to avoid the penalty. Many trustees have problem with this and report it as a 25% penalty situation. I think a heart to heart conversation might cause them to think otherwise, especially if a letter from employer was forwarded to trustee. The coding for a distribution within 2 years contemplates that there are exceptions AND (IMO) this is one of them. [iRC 408(d)(4) & (d)(5) made applicable by 408(p)(1) and 7701(a)(37). Explain to them also how you will hold them liable for all fees and service charges levied by your professional advisors if they report it one way and you report it properly (with explanation if needed). Wickersham also indicated same informally at an ASPA seminar we co-chaired. A SIMPLE is an IRA that can't hold traditional IRA, SEP, or SARSEP assets. [This message has been edited by Gary Steven Lesser (edited 07-09-99).]

The DOL will NOT know who made the complaint.

Assuming no existing ownership or other direct or indirect interests it should be okay. However, trustee (see other messages) will generally charge more than client is willing to pay. Also, an annual valuation may need to be performed if fair market value cannot be readily obtained. Although not mentioned in your facts, an option granted to an individual can not excercised in the plan. Also, if an employee/officer/sharehold of bank more information may be needed). [This message has been edited by Gary Steven Lesser (edited 05-12-99).]

Just the 415 limits. It is not necessary that 70% actually defer (but I suspect you knew that already).

No problem. Contributions are optional even if 1% was contributed for just two years and the plan was terminated (and employees so notified of the amendment, and given a copy of same).

A simple plan may be maintained for non union ee/s even though contributions are being made for unionized employees in a separate plan (see IRC Section 408(p)(2)(D)). As you point out, the simple would not be useable in a Davis-Bacon situation.

Yes.

You may want to contact EBRI (www.ebri.com) or search for a 125 (or cafeteria plan) Council on the internet.

Since there are no employees AND the plan is not integrated AND the individual has no other businesses or W-2 income you may contribute 13.043478 percent of the amount subject to Self-Employment Tax (as shown on line 4 of Form 1040 Schedule SE, OR or 92.35 percent of line 31 of Form 1040). In ALL other cases you will want SOFTWARE (such as QP-SEP Illustrator) to interate the answer quickly. For more information on software contact GSL Galactic Consulting at 317-846-7704.

Dawn: Backing out the match just isn't required under 408(p)(6) as it is in the case of a Keogh-type plan under Code Section 401©; "without regard" means to ignore it; thus $50,000 is the starting number that (according to IRS) must be multiplied by .9235% (IRC 1402(a)(12)). The owners contributionS are both claimed on his/her 1040. CLE contributions on Schedule C. Keep in mind that 401© DOES NOT apply to a Simple plan. Steve: As long as Mom is really an employee and she's eligible to prticipate she can defer her $6,000 of W-2 income and receive a match too.