Gary Lesser

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

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

No. The plan document provides special rules and notice requirements for each of the three types of elective excess contributions.

You are correct, it is a dividend (and not plan compensation). Arguably, it could be changed into W-2 income (especially since it probably shouldn't have been on a K-1. The year is the year the excess w3as made. Excesses are subject to a 10% per year employer penalty until coreected. Was broker's advice in writing? !!! Yes, RP 2008-50, Section 6.10(5)(b) No. The 1099 is issued to employer (for employer contributions) for year in which excess returned. [see section 6.10(5)(a)] There is no "sleep with one eye open" or "take a chance" section of the Code. The excess penalties are cumulative (6% and 10%) and the statute of limitations hasn't even started yet!! It could be a very costly mistake. Not likely! Hope this helps.

Employer 1 could adopt the plan of the ABC company and continue with the 401(k). Other changes may be needed, like designating the plan administrator. Employer 2 never had a plan; it was the plan of the ABC Company (right?) covering the employees of the 2 entities. If 50/50 ownership, it would not appear that that any of the three entities are related, controlled, or affilliated. If either partner had more than a 50% interest, then code section 415(h) would apply. If 80% or more, then there could be problems. Assuming entiries not related, then the exclusive plan rule would not apply. In some cases, service with a predesessor employer needs to be counted, see IRC 414. Keep in mind that elective limits are also applied individually (in addition to being plan limits).

An employer that previously maintained a SIMPLE IRA plan is treated as satisfying the 100-employee limit for the two calendar years immediately following the calendar year for which it last satisfied that requirement. [i.R.C. § 408(p)(2)©(i)(II)]A special transition rule applies if the failure to satisfy the 100-employee limit is the result of an acquisition, disposition, or similar transaction involving the employer. [i.R.C. § 408(p)(10)] Note. Although it is not entirely clear, it appears that the two-year grace period applies to the year following the year that the employer was no longer an eligible employer at any time during the year. For instance, an employer that exceeds the 100-employee limit in mid-year would, for purposes of the grace period only, be treated as an ineligible employer for that year (even though it was an eligible employer on January 1 of that year). If the grace period is measured as of the first day of the preceding year (when the employer was an eligible employer), then the employer may continue the plan for three years, and the grace period in the examples above would have to be extended by one additional year. See Q&As 14:47 and 14:48 in Simple, SEP, SARSEP Answer Book. Hope this helps.

David, And "yes." Each of these unrelated entities can have a plan. Since there is no aggregation in regard to the $49,000 limt; the partner could get an allocation of $49,000 from each plan. Thus, the unrelated employers are not treated as a single employer. FWIW-- 1) The more than 50% control limit of 415(h) applies for purposes of the 415 limits. 2) If there were a SARSEP and a 401(k), the elective limits applies to each plan and to the individual. 3) The self-emplyment tax deduction must be allocated between the two employers in claculating EI. If the partner is well over the $245K limit, this is not an issue. Hope this helps.

The partnership must have a plan to consider its partner's EI. The other entity could have a plan based on EI from that business only. The EI from the partnership needs to be considered when calculating the 1/2 of self-emplyment tax deduction amount (generally allocated pro-rate between the entities). Also, for 2010 only, any deductible health insurance premiums, must also be considered by the plan, but not in calculating the 1/2 of the self-employment tax deduction. If the resulting amount will be less than $245,000 you might want to consider using Software designed for this purpose.

1. With a 25% contribution there would be no room for normal elective contributions -- $25,000 + $5,500 = $30,500 2. With $16,500 normal elective + 4.3750060% employer contribution ($4,375) = 25% + catch-up = $16,500 + $4,375 + 5,500 = $26,375. Note that normal elective contributions reduce the amount the 25% limit is applied to. Hope this helps.

There is no 60-day notice required to terminate the SIMPLE-IRA plan. Must be terminated on or before December 31. The trustee/custodian should be notified that no further contributions will be made and none should be accepted. Thus, salary reductiuon to this plan will just cease. And "yes," the qualified plan would invalidate the SIMPLE. Hope this helps.

The plan may not have been amended. The 15% limit applied before2002. With a $20,000 integration level, the maximum spread between the base percentage and the excess percentage is 5.7%. Perhaps the plan provides a step-rate formula and the employer selected or used 4.3% instead. A lower excess rate, if in accordnce with plan provisions, is allowable. If a 4.3% spread with a $20,000 integration level is used, the maximum contribution would be $48,140 [$49,000 - ($20,000 x 4.3%)] for 2009 If a 5.7% spread with a $20,000 is used, the maximum contribution would be $47,860 [$49,000 - ($20,000 x 5.7%)]. The formula would be 14.2999980% up to $20,000, and 19.999980 on ecess compensation not to exceed $245,000 for 2009. Hope this helps.

More information probably needed. The business can have a SEP but the owner's have no compensation upon which to base a contribution. Does this business have any employees? Do each of the owner's operate a sole proprietorship that is a trade or business? WHy a 1099?

I {respectfully} disagree; for a SIMPLE IRA, the contribution amount is ignored. [iRC 408(p)(6)(A)(ii)] There is only one reduction for SE tax (100% - 7.65%) = 92.35% 92.35% times NESE times Rate (3%), or 2.77050% times NESE. NESE is shown on Form 1040, Scedule SE (line 4, Section A, or line 6, Section B).

Appleby is still correct. The rehired employee is eligible on their date of rehire. By allowing the 60-day period to start on the day plan notice is provided to the rehired employee (instead of the next day), a rehired former employee, for example, will not have to wait until the following year to become eligible. It would be impractical to require notice before the date of eligibility; because that day or the identity of the employee, is not always known. See SIMPLE-IRA LRM Sections 6 and 7; IRC 408(l)(2)© and 6693©; ERISA 101(g). Under the model document, the rehired employee would appear eligible (Article 1). The 60-day period to make or change the salary reduction election begins when the 60-day notice is provided (Article II(2)(a)). Unless this employee was rehired during the same calendar year that they "made an election to terminate" their salary reduction agreement, I see no reason to make the individual wait until the following year (or next election period if sooner) to participate (with a valid SR election agreement inplace). Hope this helps.

A SEP for non-collectively bargained employees (whose retirement benefis were negotiated) may be used in combination with a 401(k) that only covers collectively bargined employees. If any employee is covered by both plans, all SIMPLE-IRA contributions are excess contributiuons. IRC 4089p)(2)(D)(i) Hope this helps

Felicia, You are probably correct. The Coverdell ESA Contribution limit for 2011 is listed at $2,000. Since the sunset provisions take effect next year, that limit should be $500. Hopefully, it will be extended after the mid-term elections. If not, I will post modifiied charts.

Updated for 2011 cost-of-living adjustments and the new in-plan rollover provisions of the SBJA of 2010. These charts are provided for your personal use. They may be reproduced, laminated, and disseminated by obtaining my prior written permission. Send request to QPSEP@aol.com For laminated copies of this and other handy reference charts, contact Denise Appleby at 973-313-9877 or at Visit Her Website Hope this helps. --Gary COLA_RO_2011_Feb_6_2011.pdf

Updated for 2011 cost-of-living adjustments and the new in-plan rollover provisions of the SBJA of 2010. These charts are provided for your personal use. They may be reproduced, laminated, and disseminated by obtaining my prior written permission. Send request to QPSEP@aol.com For laminated copies of this and other handy reference charts , contact Denise Appleby at 973-313-9877 or at Visit Her Website Hope this helps. --Gary COLA_RO_2011_Feb_6_2011.pdf

Updated for 2011 cost-of-living adjustments and the new in-plan rollover provisions of the SBJA of 2010. These charts are provided for your personal use. They may be reproduced, laminated, and disseminated by obtaining my prior written permission. Send request to QPSEP@aol.com For laminated copies of this and other handy reference charts , contact Denise Appleby at 973-313-9877 or at Visit Her Website Hope this helps. --Gary COLA_RO_2011_Feb_6_2011.pdf

DP. Is the source of the SEP income an entity other than the 33%-owned employer? Assuming the business are not otherwise related or affiliated, and all attribution rules (family, trust, and estate) are satisfied, it may be possible for nonelective contributions (up to $49,000) to be made to a SEP and a QP. Special care must be taken in computing the SEP contribution if self-employed, because the W-2 income reduces the self-employment tax, and half of that amount is used to arrive at the owner's SEP compensation (earned income). Failure to do so causes lower contributions for owners (and would likely violate other conribution rules if any nonowner employees were involved). Hope this helps.

See other post at http://benefitslink.com/boards/index.php?showtopic=45194

Yes, this can be done; it has been done. The proposed income tax regulation that authorize an employer to do so were issued many years ago and are still current. Give them a copy of the regulations. They institution will flag the account to require that customer identification be obtained before funds are allowed to be withdrawn. It may esheat instead. In some states the principal amounts are not forfeited after esheat. [i do not know what CIP procedures are followed in this case (esheat)-- does anyone else ??] Understand, the smaller the bank (lower the level) the longer it will take to get it established! Proposed Treasury Regulations Section 1.408-7(d) follows-- See also: IRS Training Document at http://www.irs.gov/pub/irs-tege/epch1502.pdf (see page 15-5), which uses the words "must establish" instead of "may establish." Hope this helps.

It does not appear that the Small Business Jobs Act of 2010 (SBJA) changed the definition of “earned income” for retirement plan purposes. A temporary provision allows self-employed individuals who claim a deduction for health insurance premiums to reduce their earnings for self-employment tax purposes (SBJA § 2042, IRC 162(l)(4)) for one year. However, the SBJA did not change the definition of earned income for retirement plan purposes found in Code Section 401©(2) referring to and making adjustments to IRC 1402(a), net earning from sef-employment. The Technical Explanation of the Tax Provisions in the Senate Amendment 4594 To H.R. 5297 prepared by the Joint Committee on Taxation states that "It is intended that earned income within the meaning of section 401©(2) be computed without regard to this deduction for the cost of health insurance." The explanation indicates that "A technical correction may be needed to achieve this result." For example, if net earnings from self-employment under IRC 1402(a) is reduced by the health insurance premium amount, then it would have to be added back in calculationg EI under 401©(2)--which it isn't--for the intended result to be achieved. As inteneded, earned income under 401© should not be reduced by the health insurance premium--thus, allowing higher contributions. Law (enrolled version), available at: http://thomas.loc.gov/cgi-bin/query/D?c111...p/~c111DFUn1V:: Official Explanation, available at: http://www.jct.gov/publications.html?func=...own&id=3707 See pages 22-23. Note. The SPJA also created "internal" rollover conversions into DRA portability for 401(k), 403(b), and 457 governmental plans (see Explanation pages 39-43) and provisions for partial annuitization for certain nonqualified annuity contracts (see Explanation pages 44-46). It is unclear to what extent the new "internal rollover" provisions will apply to governmental 457 plans before 2011 (which may affect the ability to spread conversion income to 2011 and 2012 with a "2010" internal rollover to a DRA. The rollover provisions are effective sooner that the ability to have a DRA in a governmental 457 plan. Hope this helps.

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Please indicate how the HSA contribution was made. E.g., Through contributions to a cafeteroia plan or through payroll deduction. Generally, the plan will contain the definition of compensatio to be used. Most plan's include elective deferrals to a cafeteria plan (that are not included in gross income) as compensation. I think that there may be some W-2 (box 3) problems. Elective contributions are generally treated as social security wages. If by payroll deduction, there is no affect on the W-2 (included in box 1 and box 3). Hope this helps.