ESOP Guy

https://ttlc.intuit.com/questions/4232259-how-do-i-enter-minister-s-housing-allowance-as-a-retired-minister-when-i-do-not-receive-a-w-2-form It is my understanding Rev Ruling 75-22 allows under the correct conditions the retirement plan payment to be a non-taxable housing allowance. See link above. I can't cite anything but I don't see why such a payment doesn't meet the RMD requirement. I have always understood an after-tax (not Roth) distribution can satisfy an RMD requirement. Or at least the part that typically is non-taxable since most after-tax distribution have a mix of both taxable and non-taxable.

This might help. https://benefitslink.com/cgi-bin/qa.cgi?db=qa_who_is_employer&n=20

I have been a Midwestern boy all my life and a grinder to me has always been served in "fast Italian" places. it is a meat (most common ordered is meatball or Italian sausage) on good Italian bread with a marinara sauce and cheese all baked together. The bread gets crusty and a little hard on the outside but is still soft on the inside. The best ones I got were in the Chicago area. I don't know if it is still there but there used to be this place in Hoffman Estates, IL called Garibaldi's. My wife would get the Italian beef or turkey sandwich and I got their meatball grinder. You would wash it down with their frozen Italian lemonade. That was a meal for a young couple on a budget back in the day!

Just exploring it here a little more if you don't mind. I agree merely holding real estate isn't a business but an investment. But the original question says they are going to flip the house. That means to me they are going to buy, pay to have upgrades/repairs done with the intent to sell for a profit. That sounds like a business to me. If I did that to one house as a year just as a person it ought to show up on a Sch C not on the Sch D. That is because I am taken an active role that is outside what you do for an investment.

I am not an expert but I thought any income subject to UBIT over $1,000 meant there was a tax due. Or are you saying that isn't a business with just one house?

The Prohibited Transaction (Pt) rules are the first set of rules that need to be looked at. If this is a PT in any way that will blow this up. I THINK there could be a way to set this up so it isn't a PT but this isn't my area of expertise so I could be wrong. Assuming this isn't a PT if they run a for profit business in a plan or use debt to purchase the property the 401(k) plan has to pay taxes on the profits. Oops I am betting they thought this was a clever way to avoid income taxes on their business didn't they????? Look up Unrelated Business Income Tax (UBIT) on a plan. I forget the name of debt financed but like the UBIT if they use debt they have to pay a type of income taxes on the income. Here is the thing. They have to pay UBIT on the profits and the after tax profits are ordinary income when they take a distribution. If they run this through a regular S Corp the income flows through to their 1040 and they pay taxes only once on the income. Even a C Corp if they pay the after tax income as a dividend that is at a lower rate than a 4k plan distribution. In short there is a good chance this is going to cost more in taxes than outside the 4k plan. My guess UBIT is the silver bullet you are looking for. If there are participants in the plan is this investment prudent in terms of fiduciary duties? What happens if the deal loses money and they have to put more money into the plan to cover the loss? What if that exceeds the various limits? If they have most of the money in the property and need to pay a RMD where does the cash come from? If one takes time you can think of other practical issues that make this a bad idea. But strictly speaking it might not be illegal just really stupid.

Isn't this a question only the employer can answer? Are they saying this person is terminated or not? I don't see how a TPA can answer this kind of question. There are signs that can point one way or another but I would not claim they are full proof in determining if the person is terminated or not. But as a general rule they have to give COBRA notices to terminated employees. Have they given such notices or not? I am not sure how unemployment works but are these people reported as terminated for those purposes? Once again these are all something the employer needs to tell you and it isn't determined by pension law.

Well the new 415 limits might influence which party will win!!!!

(1) Is it acceptable to treat her as a contractor vs employee is a facts and circumstances question. What I can tell you is the law determines if you are an employee or a contractor. Too many people think this is something you can agree to or decide by contract. That isn't true. There are tests to determine if you are an employee or not. You should recommend they get an attorney to review the situation. There can be a large number of bad consequences if this is gotten wrong. (2) Assuming she is a contractor she can have her own plan as that is her business. I don't do many husband/wife business controlled group plans any more but yes there are a number of traps waiting there.

Can you get or have more details? I have seen some pretty slow ESOP termination wind downs. Some of the time they are having issues getting a Determination Letter from the IRS. A Determination Letter from the IRS is their way to saying we have looked at the plan and it is qualified at the termination. I saw one drag on for years becasue the money market fund the trustee got the plan into had an embezzlement and that put a lot of things into legal limbo. The trustee was a well know bank and everyone got blindsided. You can make all kinds of arguments about how the trustee needs to make the plan whole but that still is going to be the result of lots of lawyers doing a lot of talking. As QDROphile said if the total dollars are very large getting the DOL or IRS to come down on the plan might simply be spending your own money because all the professional fees to defend the plan might get run through the residual assets. I would have to look again which of those costs the plan has to pay vs sponsor. Although at times even if it is the sponsor if the sponsor sold and the cash is being held at the corporate level until the proceeds go into the ESOP the fees are really the ESOP's money in an economic sense not legal sense. I would see if they are willing to give you more insight into the situation and decide if you think they are delaying for a reasonable reason even if you aren't happy about it.

As a rule "yes" but most ESOPs don't allow for participant direction. In almost all ESOPs the trustee directs all the investments. That ruling by the IRS that is the issue with them. The plan was taking away participant's ability to direct their investments. So if you had an ESOP with participant direction I might have to think about it harder.

That rule really applies to distributions since the trust owns the share in the ESOP. There is a way in ESOPs to force people out of the shares by doing segregation. However, ESOPs don't give people investment choice so the logic of that IRS ruling you speak of doesn't apply. That ruling the example was a PSP that gave people investment direction and forced all terms into a MM fund. The IRS objected to taking their investment choice away from them. I believe this is the Rev Ruling CuseFan speaks of. http://www.unclefed.com/Tax-Bulls/1996/RR96-47.PDF

There are plenty of 401(k) plans with fiscal years ending on a date besides 12/31. Things like the 402(g) limit is a calendar year limit. I can think of a number of practical reason why a 1/1 to 12/31 year are easier but that is if the sponsor's corporate year is also those dates. But it isn't a requirement.

Even back when I did pooled balance forward 4ks and PSP plans I think I had one plan that made the plan loans part of the "bond fund". All the other balance forward plans the loans were the one thing where the earnings/loan interest went back to the person taking out the loan. So in my experience at least seeing loan interest going back to the whole group was rare. It sounds like Larry sees something different.

While it is true the real question is opportunity costs I would contend your listing of them MIGHT be incomplete. You have to look at this cost of credit vs other credit costs. If this person's other choice is a 15% credit card giving up even an 8% rate of return might still be a good choice it would seem. This actually can be a complex calculation with many assumptions that may or may not come true. I am not a huge fan of 401(k) loans mostly because if you lose or change your job you have to pay the loan back at a time it might be very hard to do so and that harms your retirement. However, I have taken them a few times in my life when things were tough and my other choice was very expensive other credit.

Oddly, my local credit union I use will give you a loan that is secured by a CD for 4.75% (their 5 year CD rate plus 2%) which would be the closest commercial loan to a 401(k) loan. After all a 4k loan is fully secured by the account balance. Yet, I doubt anyone would advocate that rate. It has been years since I did 4k loans but back when I did them I never had an IRS and DOL auditor question it and the most common our clients used was prime plus 1% or prime.

Larry is correct. You can get your 401(k) document from any number of firms across the nation. You can get it from an investment firm or mutual fund house. You could find a Third Party Administrator (TPA) firm that specializes in 401(k)s to help you. You might even find in your area a CPA firm that does administration and has a document that it offers people. There is even a vendor section on this website that has the names of a few 401(k) TPA firms. You have a ton of choices. If you are talking about helping with the investments you have a ton of choices there also. Any mutual fund house, local bank or broker has a way to help you. If you want daily values and the ability to call or use the internet to do 401(k) activity there are TPAs that work with the large insurance companies and mutual funds that will help you do that. I agree with Larry I would find a subject matter expert in a CPA firm or TPA firm to help guide you through all the choices you actually have.

Even if it is a discretionary match or PS contribution my understanding is if there was a board resolution declaring it then there is a contractual obligation to pay it. I would check with an attorney to ask what, if any, conditions reporting it say on participant certs as existing for years makes a discretionary contribution obligatory under employment or contract law. To be very clear here I am not talking about pension law but in both cases contract or employment law. I can imagine someone raising an issue if a match had been show as part of my account for years and suddenly someone says, "we were just kidding about that". Maybe one of the lawyers that comes by this board as an insight but I would definitely look beyond pension law.

I might not be the most useful person. I know enough to say "stop we need to do more research" when I encounter this. Bill got you a link to help you determine if you have a statutory employee. This talks about how they can have their own plan. https://benefitslink.com/cgi-bin/qa.cgi?db=qa_who_is_employer&n=49 And this might not apply as it is talking about a person who gets a W-2 but uses a Sch C to report their income. This whole grey area insurance agents occupy is very odd. Like I said I know enough to know to ask more questions not answer them well.

And often times the errors are easier to fix when they do happen.

To me the better question is does your husband have a good work/life balance? If so, than 120 isn't too many. If not than it might be time to look for a change as life is too short to be a slave to your job. Don't get me wrong I like what I do. I get to work from home and all that now. But at one time I was in a bad place and I look back on that job and think their cost cutting that lead me to be laid off was doing me a favor. I was working long days, coming in on the weekend and bringing my frustration and anger home to my wife and kids. I needed to find a new job and at the time I had 30 large, balance forward clients.

Thanks for all the good information!

I would never issue a 1099-R in this case.

I am being asked if there is a legal requirement to produce notices in Spanish or other languages for people whose primary language isn't English. Mind you the client agrees it is a good idea and is trying to get translations done. They just want to know if there is a requirement and if so which notices.

I seem to recall hearing many years ago (and memories are a tricky thing) that people have tried versions of that argument to DOL auditors and failed. Life is a risk as long as people understand the risk decide.