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.

Hello, I am looking for a little guidance (I believe the answer will be VCP, but wanted to be sure that nobody has a different idea). We took over a plan, and 2016 is the first year we are doing the administration. Several participants made Roth Deferrals, but the PPA Restatement effective 1/1/2016 does not allow Roth contributions. Upon further questioning, there have been Roth Deferrals for years (the prior EGTRRA Restatement did not allow Roth contributions either). The bulk of the Roth money is actually from the sole owner, but other participants have Roth money within the plan. The prior administrator kept track of all of these as regular pre-tax deferrals (they never requested or saw the W-2s). Again, I think I know the answer, but can we self correct this in any way, or is VCP our only answer? Will they allow us to do a retroactive amendment to the plan to allow for Roth contributions? Thank you

Hello all, I am hoping you can settle a disagreement I am having with a few people inside my office. We have a client that is a Safe Harbor 3% for 2016, and has distributed the SH Notice for the 2017 plan year (they did so by November 30, 2016). However, now the client would like to change to a Safe Harbor Match for 2017. Can the plan be amended for 2017 now, even though the 2017 safe harbor notice has been distributed? Part 2 to that question, suppose a notice had NOT been distributed for 2017. Aside from an operational failure, does that change the answer above? Thanks

Thank you everyone. I should have clarified that the existing plan is not top heavy, and is not particularly close at this point. The plan document does have the cross-tested and each individual in their own group provisions as well. It sounds like it would work, and we would do all of this within the single plan that we have. shERPA - You mentioned in your message that the cash balance plan would not work due to the 401(a)(26) participation requirement. If the CBDB covered ONLY this NHCE and no HCEs benefitted, wouldn't that qualify for an exemption to 401(a)(26)?

We have a client that is looking to acquire an unrelated business to expand into a new market. They are going to fund the purchase as an asset sale, and hire the seller as an employee to transition the business, retain clients/contracts, etc. Our client currently has a 401(k) safe harbor match with no profit sharing allocations. Currently, the buyer and seller are not close in terms of the selling price (say $500,000). The idea has been floated that when the seller is brought on as an employee, we count his prior service so he (and the other employees that come along) are eligible for the 401(k) plan immediately. In addition, we would then give the seller a profit sharing allocation up to the 415 limits assuming some performance metrics are met. This additional contribution would be used to reduce the current difference in sale price (the buyers would pay a little bit more overall, but would have a tax deductible expense, and the seller would have a deferral of income on the contribution). So, for example, the compensation we pay the seller would be under the HCE limit (say $75,000), and he would get a $53,000 profit sharing allocation, with no other employees receiving a profit sharing allocation. Since this is an asset sale, I don't believe that there would be a lookback year to determine HCE status, and since only NHCEs received a profit sharing allocation, there would be no minimum gateway or top heavy minimum issues. Is there something I am completely missing, or would this work? Does anyone have experience with this sort of set up? The other idea that has been floated around has been a cash balance plan.

I have a question and I am 99% sure of the answer, but I just want to confirm. We have a plan that has 2 participating employers. Here are the facts: - One plan is an S Corp, and the 3 owners recieve equal W-2 compensation of $150k. - The other entity is a partnership, and they each receive guaranteed payments of 99k, which is the only item taxed as SE Income in Box 14. - They contributed the 3% Safe Harbor throughout 2014 for all employees of both plans. - The only part they did not contribute is the 3% on the guaranteed payments for the 3 owners They are asking if they can ignore the compensation from the 2nd entity when calculating the 3% since they have not yet funded it (but did fund the other part). I don't believe they can, the plan includes all compensation (no exclusions), and HCEs are entitled to the safe harbor 3% contribution. Is there some amendment they could do after the fact? Again, I am doubtful, but thought I would ask.

We are talking about maybe a hundred of lost earnings in total. The remaining deposit was made in early January 2014. So really you are talking about interest on a month. They are refusing to transfer any funds between the sources without lost earnings.

I have a client that deposits their 3% safe harbor on each payroll each year, but there is a true-up at the end of the year. In 2013 (a calendar year plan), there were 2 issues: 1. They over-deposited on the safe harbor by $5,000 for a key employee (Employee #1) because they did not stop at the $255,000 compensation limit. 2. They re-hired an employee (Employee #2) and did not realize she was eligible for the plan again, so they did not deposit any safe harbor money for her. They also made a profit sharing contribution for 2013, which was deposited in February 2014. The profit sharing contribution for Employee #1 was $7,000, so the client only deposited $2,000, and wants to transfer the $5,000 that went into the safe harbor bucket to the profit sharing bucket. The custodian is arguing that there should be lost earnings on the profit sharing for all of the other employees since the Employee #1 got $5,000 of his deposited early, and that Employee #2 should receive lost earnings since her contribution was not deposited at the same time. Both of these were mistakes by the employer, and the final contribution in both instances was made timely. Additionally, the document says that "Unless otherwise provided by contract or law, the Employer may make its contribution to the Plan for a particular Plan Year at such time as the Employer, in its sole discretion, determines." I don't believe that any lost earnings should be made based on the language in the document, but I can't find any support one way or the other. Does anyone have sort of support one way or the other? Thanks

I am working with a client (a non-profit client) on correcting issues in their SEP, and we have found the following issues: - Underpayments to employee in 1997-1999, totaling $20,000, so plus interest on the VFCP calculator the total they owe is $35,000. I know that we need to contribute that and how to handle this portion under the IRS' VCP. - Overpayments totaling $9,000 to current employees (ranging from 2004-2009). The way I understand Rev. Proc. 2008-50 is that we remove these excesses from the plan plus earnings. Do we need to file amended returns for these previous years to remove the deduction, or since this is a non-profit do we just let those pass and not deduct future contributions until they reach the $9,000 they get back? - Overpayments to FORMER employees of $24,000 before earnings (ranging from 2004-2009). This is where I am scratching my head. There is no possible way we will recover the money from former employees, so is this amount, plus the earnings subject to the 10% penalty since it is staying in the plan? What collection efforts do we need to undertake to get the money from the former employees? As I said, they have some major issues, and since they are so old, I don't believe we can self correct under SCP (even though that is what a representative at the DOL told our client). Any insight or instruction would be appreciated, as I can't find guidance on how to handle excess contributions to terminated employees. Thank you, Daniel

I am trying to complete the contribution calculation for a plan, but am going back and forth on whether an employee re-enters the plan in 2010 or not. The plan has basic language that an employee re-enters if he is not gone for longer than 5 consectutive 1 year breaks in service or his original service with the employer. Here are his dates: Date of Hire - April 15, 1995 Date of Termination - June 30, 2002 (worked 1,000 hours each year - 8 Years of Service) Date of Re-Hire - April 19, 2010 (worked 1,000 in 2010 as well) If I count from his original date of hire (April 1995) to each following April (April 1996, 97, 98, etc.) he has 7 Years and 2 months where he worked. If I take 7 Years and 2 months from his termination date, that would end sometime in 2009, and he would not re-enter the plan when he was hired in 2010. However, if I look at Years of Service (where he received 1,000 hours), he received 8 Years of Service, including 2002. Starting the count from 2003, 04, 05, 06, 07, 08, 09, and he is re-hired in April 2010, he only had a 7 year break in service, which is less than his years of service of 8. Counting this way, he re-enters the plan, receives the safe harbor contribution and the profit sharing contribution. What are your thoughts on the issue? As I said, I have been going back and forth.

Thanks, I was afraid that was the answer. I had told them at the beginning of the year (in multiple e-mails) that the maximum they could put in was 5.42%, yet they still put in the 5,500 additional for the 2 over age 50. I hate the fact that HCE1 is going to have to get such a large refund since he is the only one that actually followed my instructions (and because he is the CEO). He is getting penalized for the over-contributions of the other two HCEs. Thanks for the input.