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Lou S.

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Everything posted by Lou S.

  1. I think you would have an unusual situation where you have a Key employee who is not also an HCE. Since all 5% owners direct and indirect are both Key and HCE it seems like the family members will likely be all the Key employees in the Plan and HCEs. Since you can always discriminate against HCEs you can probably draft language to do what you want. I think to have non-HCE key employee you would either need an officer earning over $220K but is not an HCE because of application of TPG group or because look backs on Key/HCE compensation might be different or a 1% owner who is somehow a Key but not an HCE for similar reasons. Again both could happen but are unlikely in a small closely held corporation. So you could set the limit on employees who are both Key Employees and HCEs equal to zero until the prior year TH test is complete. In the event that the Plan is TH you would keep the $0 dollar limit and in years you are not TH you amend out the restriction and let KEYs defer. I sounds like the kind of provision a small closely held employer and their payroll is likely to mess up but it seems like in theory it would do what you want. You could extend it to $0 for all Key employees and then test to see if you pass coverage on the off chance that you do have non HCE Key employees. Essentially you are trying to exclude all the key employees from any allocation including 401(k) in any year the plan is top heavy which comes down to plan language (which might require custom document because I'm not sure your exclusion fits in a pre-approved document but may you could make an argument for putting it in some "Other field"), coordinating the deferral stop on the first few payrolls of each year until you can run the TH tests, communicating to employees (probably just the family members) why they can't make deferrals, getting new elections when you then allow them again unless your have some special language in the election form, then getting payroll to properly stop/start deferrals if/when they are/aren't suppose to happen. Also if the Plan allows catchups, make sure you're following the universal availability rules. So in theory yes your approach might work, in practice it seems like a VCP submission waiting to happen.
  2. Oh a lot of people think the rules are unfair and an over reaction by congress back in the early 80s but there are multiple plan designs that that don't have a TH surprise taht have been expanded over the years but most require some level of ER commitment. Salary deduction IRA Simple IRA Simple 401(k) (at least I think this one does I don't work with them) Safe Harbor 401(k)
  3. And the non-discrimination rules like the top heavy rules came about due to abuses in the retirement system. Maybe you're too young to recall "excess only plans". They were a little before my time but my boss used to talk fondly of them as a small plan actuary.
  4. The required contribution might be more than the Schedule C income, but deduction is limited by the Sch C. Normally you'd have a non-deductible contribution subject to the excise tax but the excise tax is waived for a Sole Prop whose MRC would drive his income negative but you still have a non-deductible contribution to the Plan.
  5. You do know they were written because small closely held business setup plans that gave generous benefits to owners with no benefit to rank and file prior to the advent of §416. If they don't want to make any employer contribution ever I believe they could set up salary deferral IRAs and not have to worry about the TH rules.
  6. I'm a little confused if the distribution is still in his individual account didn't he get the gain/(loss) by the funds remaining in his account? Or were the funds liquidated but he never got the check which may or may not have been sent to him? If it's the former then I don't see that he has much of a claim, if it's the later the fund house is likely to simply stop payment on the original check and reissue likely without earnings.
  7. I thought the IRS clarified (in a notice perhaps?) that post year end 401(k) adoption with first year look back elective deferral was OK for self employed. No?
  8. Yes. Presumably the plan is tracking its elections (on RMD treatment and other provisions) to incorporate into an eventual amendment by the deadline if it has not already adopted one.
  9. And particularly if this is a small employer I would encourage you to look at the problems that can arise from irrevocable opt outs, especially in the area of coverage failure that may be difficult or impossible to correct via amendment depending on your demographics which may or may not be applicable to this particular situation. Just don't want to see you tripped up by unintended consequence sometime in the future.
  10. I think what he is getting at is the change to the testing method generally needs to be done before year end which is why he is suggesting VCP to get the IRS blessing to change the testing method for last year after the year end. I think this falls under an VCP situation and not SCP situation. Though with expanded SCP, may it does fall under SCP but I would probably want an ERISA attorney to opine on that before proceeding under SCP instead of VCP. I have no direct experience with a case like this but I do think your approach is reasonable and one the IRS would be likely to approve. Again that's just my opinion, the IRS may have a different view. Yes agree that the IRS could require demonstration showing compliance with BRF.
  11. That has more options that what's in the Corbel Document. You have "other checked" but it doesn't say what "Other" is. It looks like if you are using B.3. or B.4 you could make a great case for accrued to date based on those included years.
  12. How did you define the opening balance? If it was something like $Y x (past service not to exceed 5 years) than I would argue you could use up to the past service grant in the accrued to date testing. But I don't know if that would pass muster with an IRS agent, though I could see making a good argument for it.
  13. I think it would depend on how you drafted the amendment for their eligibility and whether or not you pass testing.
  14. I think you can send in a letter stating "no distributions from the Plan ever, Form 945 not required"
  15. The loan probably should have been offset at the time of the cash distribution but yes it sounds like a QPLO and you just need the correct accounting entries and 1099-R.
  16. In the past I've found that most IRS auditors are flexible if you need an extension for a valid reason, which it seems this client has. Especially if the request for extension has a specific time you will respond. Like the initial letter says supply this information by X date and the client says "due to (reason) we request a extension to X +20 days" or something like that. I have not had a problem in the past, but every auditor can be different. I think though that if the client believes the auditor is being unreasonable, they can can contact the manager to discuss the situation
  17. see this related thread with similar question earlier today.
  18. I could be wrong but I think the limitations are using the Form 5305 does not have coordinating language with a qualified plan, mostly on top-heavy which is I believe the #1 reason why the IRS does not allow any other plan I think but there could be others. So you are allowed to use a proto-type SEP which then gets treated like a "quasi-profit sharing plan". Most of the ramifications I believe all revolve around deduction of the combined employer contribution to SEP and DB plan or discrimination testing which isn't an issue if it is 1 man shop. So if you have no SEP contribution for the year, you are fine even if SEP account still exists holding the IRA assets. At least that's my understanding. As to Q4, I don't know the legal answer. That is if your DB funding is $0 for 2023 (say by deducting the MRC in 2024) but the plan is in existence, does that cause a problem with the 2023 SEP deduction or its qualification if it is on Form 5305?
  19. Yes, you add Code M to whatever other code normally applies to the Offset. Also know the difference between Loan Default and Loan Offset. They have different technical meaning when it comes to participant loans in qualified retirement plans. A loan default is not eligible for rollover. A loan offset is eligible for 60 rollover. A qualified plan loan offset is eligible for a rollover for an extended period of 9.5 months to 17.5 months depending on when QPLO happens.
  20. See the rules for Qualified Plan Loan Offset (QPLO). Plan Termination generally qualifies. Summary version - participant would then have until the extended due date of their tax return for the year in which the QPLO happened to rollover some or all of the QPLO to an IRA to avoid current year taxation. So for example if the Plan was terminating today and Joe has an outstanding loan balance of $10,000 for which the plan will issue a 2024, 1099-R for the QPLO, see instructions to Form 1099-R for proper distribution coding, then Joe would have until October 15, 2025 to come up with $10,000 from other sources to deposit to his IRA as a Rollover contribution.
  21. Maybe run a scenario with amending for 2023 and and taking deduction in both years v not amending and taking double deduction in 2024 then let the client decide. If he want "the max now" because he's slowing down in 5 year, you might find the total is more if you deduct in 2023 but you might find the numbers are about the same and the client doesn't want to be bothered with amending. Your MRC for both years is probably going to be the same either way but your max deductible might change because of how the cushion works.
  22. Yes that can work. But since you'll need to get the plan in place by 4/15 anyway for the retro plan since there is no extension, why not fund by 4/15 and amend the 2023 tax return with the contribution?
  23. I'm not saying that is the reason, but it's valid. Even if it's required, what happens if the sponsor goes bankrupt say next week and say's "I don't care if it's required by the document we don't have the money, let the Trustee make a claim in bankruptcy court." Just playing devil advocate. I can see valid arguments for not doing the ACP refunds until the match is actually deposited. Don't want to pay the excise tax for refunds after 3/15? Simple, fund the match before 3/15 so we can process the refunds. Again not saying which is right or wrong, just presenting an argument for why a custodian might not process it which may or may not be spelled out in their contract.
  24. Check the rules on participation waivers. You are probably better off excluding from the Plan in the document than having them execute a waiver. Pretty sure it must be executed before they become eligible and must be irrevocable. I believe it also applies to all future plans the employer may adopt but not 100% certain on that point. In your example the Owner and both daughters are all both HCEs and Key employees since they are all 5% owners by §318(?) stock attribution rules. All the rules for top heavy continue to apply.
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