PensionPro

Does anyone have ideas on the Excel formula to be input in the cell for calculating the sole proprietor's integrated contribution, i.e. splitting the earned income between plan compensation and plan contribution after deductions for employee contribution and self-employment taxes have been applied?

1) If she is at least age 50 she may be able to defer $5,000 as catchup over the 6% limit depending on the employer's policies. 2) Talk to your tax professional about the possibility of deferring some retirement funds in an IRA. Or use the worksheet related to line 32 of Form 1040 to figure out eligibility for IRA deductions.

Yes, they seem to be a controlled group based on the information you presented. You may find some relief under the QSLOB rules (qualified separate lines of business). Best wishes.

I see. Then when your determining earned income by substracting off 1/2 SSE, what do you subtract???? The SE tax calculation is not directly and completely related to the plan compensation. Here is a real life example. We had a doctor whose profession on his tax form was "doctor/farmer." He had a ($110,000) net loss on his Schedule F, and a $150,000 net profit on his Schedule C. We netted his income for SE tax calculation, because as per Schedule SE instructions, you use profit or loss from Schedule F on line 1, and profit or loss from Schedule C on line 2 of Schedule SE. For plan compensation, we used his net Schedule C profit of $150,000 only and subtracted the SE tax calculated as per instruction for Schedule SE (i.e. netting the compensation). The administration software was not able to handle this without hand holding. Even though we were dealing with a Schedule C and Schedule F, I believe the logic would apply with multiple Schedule C's.

The short answer is that I believe you aggregate earnings for calculation of SE tax. However, for plan compensation purpose, you do not aggregate.

For whatever it is worth, here is what the ERISA Outline Book says, "If a self-employed individual is engaged in more than one trade or business, the earned income of each trade or business is determined separately, according to Treas. Reg. 1.401-10(b)(2). For example, if one business produces earned income of $50,000 and the other business produces a loss of $60,000, the individual does not net the earned income of the two businesses. The $50,000 of earned income from the first business may be used to support a qualified plan contribution ... "IRS apparently agrees with interpretation ... "Note that some commentators take the position that a net loss must be offset against the net gain, so that a self-employed individual has less earned income taken into account under the qualified plan ... we feel that IRC section 401(d) and Treas. Reg. 1.401-10(b)(2) support the conclusion that a net loss should be treated as "zero" compensation, not as negative compensation." This perspective seems to be contrary to the consensus on this forum. I hope someone can chip in and clarify.

If the participant is eligible to receive a distribution of the account balance, Roth 401(k) funds can be rolled over to a Roth IRA. Pre-tax 401(k) funds can be rolled over to a Roth IRA as long as the conditions regarding AGI limits and filing status (married filing separately not eligible) are met. The distribution must be included in the participant's income for tax purposes. The 10% premature withdrawal penalty does not apply. See IRS Publications 575 and 590 for more information.

Davis-Bacon employer fringe benefit contributions are not 401(k) employee deferrals, and are therefore not subject to the same depositing timing rules. However, Davis Bacon fringe benefit payments must be made to the plan "not less often than quarterly." 29 CFR 5.5 (a)(1).

There are two options the way I see it: 1) There is no 5500 filing requirement, since there are no assets in the trust, despite the fact that the 401(k) plan was effective during the year. 2) A 5500 is required to be filed, because the instructions state that "the return/report is due ... even if ... contributions were not made this plan year." I would go with option 1, since option 2 seems to be talking about a plan with assets, but not making contributions for a particular year. Either way, the DOL computer may generate some queries.

With the limited info available, I would say the client and the prison officials need to come to an agreement on whether to include the work release employees. 1) if the consensus is to exclude, amend plan document to make work release employees an excluded class. Make sure you pass 410b. 2) if the consensus is to include, then include them.

A profit sharing plan is co-sponsored by a 100%-owned corporation and sole proprietor (the same person is the owner and the sole proprietor). The corporation has about 10 common law employees, and there are no common law employees in the sole proprietorship. The owner makes $150,000 in W-2 from the corporation, and about $170,000 in earned income prior to any deductions from the sole proprietorship. Is there any guidance as to what percentage of the owner's contribution of $45,000 can be or should be deducted by the sole proprietorship? Or can I deduct the max 404 from the sole proprietorship, and the remaining from the corporation? Or put another way is there any regulatory restriction on how to aggregate compensation? I appreciate your input.

Non-resident aliens with no US source income are considered excludible employees. IRC Sec. 410(b)(3)(B) and Treasury Reg. 1.410(b)-6© or thereabouts. Depending on the applicable tax treaty, certain non-resident aliens with US source income may be excludible. Resident aliens, H-1B, etc. may be excluded, but they are included in coverage testing.

We use a Corbel VS document for a profit sharing plan that allows cross-testing and has each participant in a separate group. In certain years, is it permissible to use design-based safe harbor allocations and not utilize the cross-testing feature. Specifically, comp-to-comp allocations or TWB-integrated allocations. Unfortunately, younger employees terminate employment when you least expect them. Thanks for your insight!

We have a plan that fails the compensation test. The plan only has 401(k) deferrals and employer matching contributions. Can we still run the rate group test to prove nondiscrimination?

Let's say the plan passes the ABT on an aggregate basis (ABPT > 70%), and the component plans pass the 410(b) ratio percentage test. Since the reasonable classification test is part of the ABT, are we required to apply and pass the ABT to the individual component plans in order to use the lower midpoint for the rate group test? Or are we required to apply only the reasonable classification test to the component plans? Thanks so much for helping us navigate these choppy waters!