Danny CPA

I believe I know the answer here, but I am just looking for something definitive that supports my position. A client had approximately $60K worth of Bitcoin in their Roth IRA that was stolen through a hack on one of the crypto exchanges. They believe they are going to receive a settlement check (unsure of the amount) from a lawsuit. Client wants 100% of the proceeds to go back into their Roth IRA. I believe this would be permissible and would not be considered a contribution for the year. I can't find anything definitive to support/oppose that position though. Thoughts? Agree/Disagree?

Yes, of course. It should pass, maybe he wouldn't get the full contribution, but it should come close. Didn't want to run through the process of re-calculating everything and re-doing the testing if the answer was going to end up being a no.

We aren't the CPA for this client's personal return or partnership - we just do the retirement plan. That said - with the 9/15 deadline for partnerships to make a contribution, I don't believe we can deduct it on the 2020 tax return just because the partner has until 10/15. Yes - the overall contribution would still be under 25% of pay, even with this additional funding.

Here is my situation: - Plan sponsor is a partnership with a cross-tested profit sharing plan - We received the K-1s for 2020, which only had Guaranteed Payments subject to Self-Employment Taxes in Box 14A. - For one of the partners, he was limited (to pass testing) to a profit sharing of $20,000 (Box 14A was only a little over $100K). - We just found out (after the September 15th deadline), that the K-1s were in error, and he should have had over $300,000 in Box 14A. They are filing an amended 1065 He would like to put in the full $57,000 for 2020 (an additional $37,000 contribution). He can still put in the additional $37,000 for 2020 since it is still within the time frame for a 2020 annual addition, but he cannot deduct this on his 2020 1040, but could on his 2021 1040. However, the next question is if he wants to do the maximum in 2021 ($58,000), can he deduct the full $95,000 ($37,000 for 2020 plus $58,000 for 2021) on his 2021 Form 1040, or would that be limited to $58,000 only? I tend to believe the answer is yes, he would get the full deduction in 2021 - but I am struggling to find support for that position. He isn't violating the 415 limits or the maximum tax deductible contribution for the plan. Thoughts/support for that position?

Right, so let me clarify. Document has hard-coded that it is a safe harbor plan for 2020. Business is having a hardship right now due to Covid-19, and wants to stop the safe harbor for 2020. The SECURE Act allows you do adopt a safe harbor plan by November 30th (3% nonelective) or by due date of tax return (4% nonelective). A plan that is not safe harbor can then adopt those later on based on SECURE. So my question is the client that had a safe harbor in place at the beginning of the year, stops it right now due to Covid-19, and then, if things turn around later, can they become a safe harbor again?

Hello, I have seen a few suspension of the SH election questions already, but didn't see this question addressed. If we have a client that wants to suspend their SH election now (either the 3% safe harbor or the match, doesn't really matter), can they elect to become a safe harbor plan later in the year or after year-end based on the provisions in the SECURE Act? We are wondering if this is a way out of the cash flow requirements now and a possible fix later on if things turn around to avoid refunds. Before discussing this as an option with clients I am looking for some guidance one way or the other. Thoughts?

It is volume submitter in IDP format. No references in the document at all to a short plan year (other than the basic, in the case of a short limitation year, or short plan year, etc.). However, this is an initial limitation year, which is stated above.

Our document language on both the Limitation Year and Plan Year (this is an FIS Relius IDP document if that makes any difference): Limitation Year: "Limitation Year" means the Plan Year. All qualified plans maintained by the Employer must use the same Limitation Year. Furthermore, unless there is a change to a new Limitation Year, the Limitation Year will be a twelve (12) consecutive month period. In the case of an initial Limitation Year, the Limitation Year will be the twelve (12) consecutive month period ending on the last day of the initial Plan Year. If the Limitation Year is amended to a different twelve (12) consecutive month period, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made. The Limitation Year may only be changed by a Plan amendment. Furthermore, if the Plan is terminated effective as of a date other than the last day of the Plan's Limitation Year, then the Plan is treated as if the Plan had been amended to change its Limitation Year (to end on the date of plan termination). Plan Year: "Plan Year" means the Plan's accounting year of twelve (12) months commencing on January 1 of each year and ending the following December 31. The annual additions section of the document is based on the Limitation Year, which, according to the definitions section above, is the full 12 month period ending on the last day of the initial plan year. There is nothing in the document (and I have been going up and down it) that references the initial effective date or initial plan year other than what I have listed above. So, the way I read that, I don't have to pro rate the annual additions limitation, but I would have to pro rate compensation (I assume there is no way around that).

That is where I am getting confused - the document definitions for limitation and plan year are both the 12 month period ending December 31st. They completely disregard the effective date of the plan.

Hello, I am hoping all of you would be able to give me some guidance. Facts: - New plan, effective date 10/1/2018 - "Compensation" means a Participant's Basic Compensation, (which are W-2 wages), actually paid during the Compensation Computation Period (defined in the document as the Plan Year. - Compensation excludes pre-participation compensation - Plan Year is the 12 month period beginning January 1, ending December 31st. - Limitation year in the document says: " In the case of an initial Limitation Year, the Limitation Year will be the twelve (12) consecutive month period ending on the last day of the initial Plan Year." - Eligibility is normally age 21, 1-year of service, monthly entry. However, all entry requirements were waived 10/1/2018. - 4 Employees - 2 hired 5/30/2017, 1 hired 6/26/2017, and one hired 10/15/2017. Questions: 1) Is the 415 or compensation limit pro rated for 2018? I do not believe so based on my reading of the above. 2) For the employees, do I take compensation from 10/1/2018 - 12/31/2018, or from what their individual entry dates would have been (6/1/2018 for the first two, 7/1/2018 for the third, etc.) 3) This plan will be top heavy, so my understanding is I need to give non-key employees 3% of their annual compensation (1/1 - 12/31) - correct? Thanks for your help and guidance.

Thank you. One of the partners in my office argued that we don't allow hardships for student loan repayments, and this is similar. Although the difference in this situation is the hardship qualifying event (tuition) was already paid, but the medical bills are still medical bills. Any other thoughts/opinions?

A participant has requested a hardship withdrawal to pay medical bills. They have old medical bills that are in collections at this time, and the date of service was back in 2015 and 2016. They even have a couple from the end of 2017, but nothing in the past 6 months. Is there a time limit on the medical bills, or is there a point in time where it changes from medical expenses to debt? What are the thoughts on approving this hardship?

Thank you all. Unfortunately there is no amendment hiding out there. The plan was fully amended/restated in 2015 AND 2016, and both documents have the same integrated formula as the option. It is a standardized prototype document, which, again, does not allow for cross-testing as an option.

Hello all, We just picked up a new plan, and the document indicates that the profit sharing formula is integrated at the taxable wage base. The client sets a percentage that they want to contribute for all of the staff (say 5%), and then run the calculation from there. The individual partners (all Key or HCEs) then select their own contribution level (all below what the integrated formula says it would be). For example, if the formula to get all of the staff 5% of pay, the contribution for one of the partners might be $15,000. However, he decides to only contribute $10,000. The prior administrator was then running the contributions through the general test, and passed. However, unless there is something I do not know about integrated formulas, this is an operational failure, correct? They didn't follow the terms of the plan document, which indicate an integrated formula. I am not aware of any provision that says you can reduce the integrated formula benefit (even if it is only hurting the HCE or Key Employees). In terms of correction, how would we go about this? The only ones who were shorted in contributions were key employees or HCEs. It is my understanding that they have done this for 2 years (2015 and 2016). Thank you all for your assistance.

Thank you all. I figured that would be the case. We will discuss with the plan sponsor.