Gary Lesser

I would keep at least one copy of the brokerage statement to show the registration of the account is that of the plan if not apparent from the 5498. I would also keep copies of any tax returns forever. I generallysuggest that the last 6 years be maintained with supporting documentation. Beyond 6 years, discard the supporting information. Hope this helps.

Absent bankruptcy, state law is controlling. That being said, some states treat SEP funds differntly than traditional IRA funds; even if held in the same account. What state? Perhaps someone can be of assistance.

Consider the streamlined application procedure under the EPCRS. See RP 2008-50, Appendix F (and section 4 of App F). None of the other methods will give any assurance that the plan is fixed, or that the additional contributions are deductible. Sleeping with one eye open (method 3) could tun out to be a disaster (lots of cummulative penalties for employer and possibly employees) Hope this helps.

Good analysis in above two posts. Technically, the owner did the same for himself. Your contribution is allocated based on plan year compensation. Your percentage cannot be less than the owner's percentage if an IRS model plan is being used. The amount excludible from income is 25% of taxable compensation for the limitation year (generally the plan year). However, the 25 percent employer deduction limit for 2010 is based on the aggregate compensation (including, for this purpose, elective deferrals such as catch-up contributions) of all plan participants. The 25 percent deduction limit is computed using each participant's calendar year compensation. If the employer's 2010 tax year ends prior to December 31, 2010, calendar year compensation for 2009 is used. It seems that with a contribution of 25%, only a 20% reduction was necessary. [$100 - $20 (20%) = $80. $80 x 25% = $20.] If a SARSEP, there would be an amount shown in box 12 of your Form W-2. If a SEP or SARSEP, the "retirement plan" box (13) should also have been checked. SEPs are pension plans generally subject to the requirements of the Employee Retirement Income Security Act of 1974 (ERISA), including ERISA's reporting and disclosure obligations. Simple annual reporting requirements apply where the employer has adopted the IRS model SEP without modification. In that case, the employer need only have complied as follows: 1. Provided employees with copies of the completed Form 5305-SEP 2. Notified each employee in writing of the amount of employer contribution for the year 3. If the employer selected or otherwise influenced an employee's selection of a particular IRA that restricts the withdrawal of funds, has provided a written explanation of the restrictions and informed the employee of the availability of IRAs that do not restrict withdrawal An employer must also inform its employees of the SEP's adoption and its terms, including a description of participation requirements and the benefit allocation formula. Such information is to be provided within a reasonable time after an employee becomes employed (or after the SEP is adopted, if later). The instructions to IRS Form 5305-SEP indicate this requirement is satisfied if the employer adopts the IRS model SEP and gives the employee a photocopy of the completed Form 5305-SEP. Similar requirements apply to a prototype SEP. The sponsor of a prototype SEP will generally provide a “fill in the blanks” disclosure statement designed to satisfy ERISA's annual reporting requirements. An employer must also provide each employee annually with a statement showing the amount contributed to the IRA on the employee's behalf. This requirement is satisfied if the information is recorded on an employee's Form W-2. If the employer cannot locate an employee, the IRS may require that the employer file reports with the IRS for the employee. There are serious implications if an employer fails to do so. You might ask for a "Plan Disclosure Statement." Hope this helps.

Yes the pre-2009 general rules were revived for 2010--Boxes 1 and 2a are the same. Box 2a is cannot be determined ("X") because only the taxpayer knows how much of the IRA distribution is taxable. Note. For additional and comprehensive 2010 reporting information see IRA Plus (newsletter), PenServ Plan Services (vol 20, No. 8, 9, and 10). Subscription required, contact 903-455-5500 for additional information

The elective contribution limits under Code Section 402(g) are both plan and individual limits. Therefore, the maximum combined elective contribution (SIMPLE-IRA and 403(b)) would be limited to $16,500 (plus catch up contributions up to $5,500). It would seem that $2,500 of his $7,500 contributions under the 403(b) need to be treated as catch-up contributions. ........($11,500 + $5,000) + ($2,500 + $2,500) = .........$16,500 + $5,000 is within limits. Did he earn more than $266,666.66 (from his the trade or business) to make a 3 percent matching contibution of $8,000? Blame the software! Hope this helps.

Are you saying he is an employee of a company (that maintains a SIMPLE-IRA) that is not controlled or related to the "separate-line" business and is the owner of that trade or business? If so, yes (he can max out on both plans). Also seems like all of his trades or business (Sch F & Sch C) need to be aggregated (treated as one employer) for the SEP eligibility purposes. Hope this helps.

Under the EPCRS (Rev. Proc. 2008-50), the excess contributions can be distributed or retained (and it's probably not too late to use this method). Otherwise, they are just traditonal IRA "excess" contributions (and can be corrected after the due date without any problem, just a 6% tax).

If there were common-law employees (getting W-2s) in addition to the partners receiving K-1s, the IRS might entertain at fix under the EPCRS (Rev. Proc. 2008-50). If so, by year--how many nonowners were excluded (eligible to participate) and how many owners had SEPs and how many didn't? As a side question, did any partner with a SEP have any ouside earned income AND would that outside business be treated as a controlled or related employer with the LLC? Most plans provide that they cover "controlled and related employers" so there may be some wiggle room to fix an otherwise faulty adoption. [Practititioners that I have assisted with in submitting SEP EPCRS applications have contacts they can call and discuss "hypothetical" fact patterns.] It is the "employer" that must sponsor the plan; that's the LLC. Thus, contributions were not made under a SEP and all (employer and elective) contributions are excess contributions in the IRA. The real problem may be in correcting those excesses for prior years (not made in 2010) as the return due date has probably passed. Under Code Section 408(d)(5)(A) the amount corrected in not suject to tax, but only to the extent the excess doesn't exceed the $5,000/$6,000 traditional IRA limitation. Thus, amounts may be subject to tax when withdrawn. Under normal circumstance this limit is increased for SEP contributions (of which there were--technically--none). Since the 6 percent penalty on excess contributions is cummulative; a correction method need to be chosen (as the problem just gets worse with each passing year). SEPs are very unforgiving creatures. Hope this helps.

See (among other posts in this foum) the following post: Link to Post

MarZDoates, interesting question (pretty dog). Some addiional information may be helpful (possibly useful, but see #8)-- 1. Are the intentions of the other partner (and his/her employee) regarding retirement plans known? 2. Will the old entity and the new entities exist at the same time (on any day)? [see common control under IRC Secs. 414(b), 1563(a)] 3. What is the equity percentages of the partners? Are the partners related (e.g., H & W)? 4. Will plan structure remain the same (i.e., DFI or nonDFI). 5. Are the IRS model forms being used for the SIMPLE and SIMPLE-IRAs? 6. Is it the partnerships intention to match (or make nonelective) contributions under the plan for as long as it does exist and before it is dissolved (under state law)? Not that there is much choice in this. 7. Is there anything to suggest a formal predecessor-successor relationship under state law? 8. Would there be any objection to one of the new entities adopting the existing partnership plan (as an adopting employer), and then having the patnership withdraw, plan name changed, and the trustee/custodian notified (and of the date of the last contribution by the partnership)? [Mostly by Resolutions of the Partnership and of the Sole Proprietor.] Sole proprietor also affixes signature to SIMPLE plan document. There may some advantage to doing this (e.g., 2-year rule). This approach also eliminates the possibiliy of there being more than one SIMPLE for the "same" employer and counts all service (see IRC Sec. 414(a)). The new employer should probably issue new annual notices and revised plan description information to be safe. I am not aware of any formsl guidance on this issue (other than the existing plan having to be funded). Hope this helps.

Michael, If the check was received in 2010, the trustee/custodian is required to treat it as a 2010 contribution. That being said, a 2009 postmarked envelope, however, may be logged in as a 2009 contribution in accordance with the trustee/custodian's policy (?). This is allowed. If you indicated on the check that it was a "2009 contribution," the trustee would likely correct the reports. Yes, you might be headed into an excess HSA contribution problem. Hope this helps.

No. It might be different if the owners were not eligible to participate in the union plan. In other words, if retirement benefits were not the subject of good faith collective bargaining for owners then they could be in a SEP. A letter from the union to that effect should be kept with the SEP plan's administrative files. The owners may have to be unionized to work on a site; but negotiating benefits for them is entirely another matter. Hope this helps.

NO--An employer "currently" maintaining a plan can not establish a SEP using the model forms. Never could. But nearly all prototypes would be acceptable. In general, the profit sharing deduction limit is reduced by contributions to the SEP and aggregate contributions are subject to IRC 415 limits--e.g., $49,000/25%; and the SEP must separately adhere to IRC 402(h) -- e.g., $49,000/25% includable). YES--An employer tht no longer maintains a plan (including a DB) may use the model form to establish a SEP. Hope this helps.

You should start with IRS Publication 560 - Retirement Plans for Small Business. For a treatise (1,000+ pages) on the subject matter, try the SIMPLE, SEP, and SARSEP Answer Book Hope this helps.

Treasury Regulations Section 54.4980G-$, Q&A 14----

Under these circumstance, the plan can be fixed under the EPCRS. The percentage is deemed to be 3% and the employer will have to contribute 50% of the amount the emploees could have deferred had they been given the opportunity to participate. In addition, that amount has to be matched at 3%. In both cases, adjusted for earnings. See Rev.Proc. 2008-50, Appendix F, Part I, Section D. "Failure to provide eligtible employees with the opportunity to make elective deferrals." The plan can be terminated effective 1/1/11, provided the termination occurs on or before November 1, 2010. Notify the trustee/custodian that the employer will not be making contributions for the next plan year and that it wants to terminate its contract or agreement. The employees must also be notified of the termination. [sIMPLE, SEP, and SARSEP Answer Book Q&A 14:108; see also Pub. 4334] The adoption of a qualified plan for 2010 would also invalidate the SIMPLE IRA for 2010 and cause all contributions to the SIMPLE IRA to be excess contributions. Problems will occur if the excess amounts (adjusted for earnings) are not withdrawn from the SIMPLE IRAs by the participants. Arguable, the excess amounts are to be reported in box 1 of Form W-2 and the total deferral shown in box 12. This failure can also be fixed under the EPCRS, but the correction method is different. Hope this helps.

It is too late to terminate the PS for 2009. If contributions are made to the PS plan for 2010, then a SIMPLE IRA plan could not be effective any sooner than January 1, 2011, because of the exclusive plan requirement. IRC 408(p)(2)(D)(i). There is a special rules for union employees in a qualified plan that are not eligible (excluded from) a SIMPLE IRA plan. Hope this helps.

There is no problem in amending the service requirement from 3 years to 1 year. The amendment should be effective on the first day of the plan year (1/1/09) and be executed by due date of business tax return. Employees must be notified of the amendment and its effect. A revised plan descriptiion should also be provided.

Maybe; but not if any SEP contributions are made in, or for, a plan year ending in 2009. In general, a SIMPLE IRA plan must be the only plan of an employer (the "exclusive plan requirement"). If no SEP contributions have or will be made to a CY SEP plan, then the SIMPLE IRA plan could have been established for 2009 (if done timely, i.e., on or before Nov. 1, 2009).

This is a good question for requesting a "General Information Letter" from the IRS. The reason for not allowing Form 5305 to be used with a currently maintained qualified plan involves IRC Section 415 annual addition limits. The SEP and 403(b) plan may share the same 415 limit (on employer and/or employee level); so it may be unwise to use the model form. Although a 403(b) is not a qualified plan under Code Section 401, the term frequently includes 403(b) plans for other purposes; and as you are aware, the model form does not define the term Hope this helps.

I believe a Davis-Bacon plan must be a qualified profit-sharing or stock bonus plan under IRC 401(a)/501(a).

In general, a SIMPLE IRA plan can not be established for the 2009 CY after October 1, 2009--this is to allow for meaningful participation. The IRAs must registered as a "SIMPLE-IRAs" with the trustee or custodian. Hope this helps.

You might consider writing a factual letter with attachments to the IRS Employee Plans Division (your local District Office) and another to the DOL's EBSA. A letter to the employer from an ERISA attorney might also work. Failure to timely remit elective deferrals may be a prohibited transaction (IRS and DOL penalties); both civil and criminal penalties are possible, especially with the facts you presented. The employer is not correct. The "agreed to" employer contribution (matching or nonelective) must be made (regardless of any profit or loss). A SIMPLE IRA plan is not a profit-sharing plan. There may also be State law consideration. Heck, your money was stolen. and agreed to contributions not made. The plan could be disqualified (with disasterous consequences) or fixed. The IRS has procedures for fixing plans. See Revenue Procedure 2008-50, search for "SIMPLE" Eventually, you will likely recover the amouts in limbo or recieve the agreed to contributions, probably with interest. Generally, an employer must fix all problems; not just yours. If the employer will not make the agreed to contributions, and remit your elective contributions, all with interest; then you mut do battle. While the trustee or custodian of your SIMPLE IRA should have a copy of the SIMPLE plan; the fact that they do not does not change the fact that a plan was likely established and must be followed. Save all plan notices and W-2 forms, and so on. Get from other employees if possible. If all else fails, call me, maybe we can set up a conference call with employer or their plan counsel. It may help to get all of the relevent information before you go formally bonkers on them. Hope this helps.

The problem was that too much went to the participant. It would not be much of a fix to turn around and give the excess funds to the employee. For it to be fixed, the amount (adjusted for earnings) must be distributed to the employer. No deduction can be claimed for the excexx contribution. Other solutions may be possible. A Streamlined Application Procedure is available under Revenue Procedure 2008-50 for reliance on the fix. If the problem is egregious, special considerations may apply. The excess amounts may also be subject to the 10 percent nondeductible contribution penalty unless timely corrected. If it is a current years contribution, the amount could arguably be included in box 1 of Form W-2 and the excess (adjusted for earning) removed as a correcting distribution by the participant. It may be necessary to explain to the IRS why the contribution portion of the amounts removed (generally treated as a taxable distribution from the SIMPLE IRA and reported on Form 1099-R by the trustee or custodian) are not taxable twice. Unless the correction amount is actually removed by the participant, this method will not result in a fix. Hope this helps.