R. Butler

Bird has not posted anything contrary to IRS rules for self employeds. You can check the truth of what is posted yourself. Bird says that since it is clear that the Net C after all adjustments will exceed $200,000, the allocation to the owner will be same as if he was W-2 employee earning 200,000. After you make the correction to Mr. Poje's spreadsheet the total contribution on that spreadsheet is 43,168.80. The spreadsheet shows an allocation of $29,289, $3,427.20 to the guy earning $30,000 & $10,452.60 to the guy earning $90,000. Now lets see what you come up with under Bird's post: Owner comp. $200,000, Excess comp. 113,000 -- Excess contrib. $6,441 (this is just 113,000*.057), base contrib. $22,848 (this is just the total employer contrib. minus the excess contrib., allocated pro-rate according to comp.) Total contrib. Is $29,289 Employee #1 comp. is $30,000, no excess comp. or contrib. Pro-rata contrib. is $3,427.20 Employee #2 comp. is $90,000, excess comp. is $3,000 -- Excess contrib. is $171, the base contrib. is $10,281.60. Total contrib. is $10,452.60 Low & behold you get the same result. I don't use the IRS table either. I would caution you on Step 1 (line 31 of Sch. C). Unless I'm missing something in that little spreadsheet they give, you can't know that number until you've gone through the circular calculation I set forth above. Notice in the example the IRS gives you there are no employees; that makes it nice & tidy. It is not always so nice & tidy when you add employees & their allocations depend on a changing Net C figure.

I do now see where Moe his getting those numbers, they aren't his numbers they are off your spreadsheet. One question about the spreadsheet. If the excess % is 5.7%, why is employee #2 getting an integrated contrib. of 1.71 & not $171.00? I was just looking at it & trying to see how it worked.

I also see Bird's point. Is this a straight profit sharing? Its indicated in the initial post that the owner wants to max out. If the owner's Net C (after contribs. for rank & file) is over $200,000, unless he has 401(k) deferrals or a large amount of reallocated forfeitures, its difficult for me to imagine that he couldn't get $40,000. I do know that a plan could contain an allocation formula that has the effect of limiting contribs. to the owner, but it justs seems unlikely in the case of a sole propreiter.

You are calculating the integration in Step #2 & #3. You have to calculate the contribution based on the plan's formula using the NEI from Step #7. I am unaware of a simple algebraic formula that will get what you want. The spreadsheet Tom Poje posted might give you what you want. If it doesn't & you want to post the plan's contribution formula, I don't mind e-mailing you a spreadsheet that is taylored to that plan formula. (I am currently working on my making my own self employed calc. program, but thus far for integrated plans I've only put in a basic 4 step allocation formula. I just manually change when I need something different.)

I don't know of any articles. You are going to have to run through the circular formula. 1. Beginning point is Sch. C income prior to any retirement plan deduction. 2. Run an allocation based on Sch. C income in #1. SKIP TO STEP #4 3. Run an allocation based on Net Earned Income from Step #7 4. Take Sch. C from #1 reduce by allocation contrib. to rank & file 5. Calulate SE tax on adj. Sch. C from Step #4 6. Reduce Adj. Net C in Step #4 by 1/2 SE tax calulated in Step #5 and by the allocation to the sole proprieter. 7. The Result is net earned income. You go to Step #3 & repeat this formula until you get a repetitive net earned income figure here. Hope this helps.

Based on the proposed regs & the fact I don't want to be the lone wolf crying in the wilderness I will change my answer also. 2 things though: 1. I can't be expected to know proposed regs when its iffy that I know the current regs. 2. Whoever cited Sal; that is cheating. Thats like brining a MLB player into the church softball league. My answer appears to be wrong, but it was my answer.

Yes, but it doesn't it make sense to interpret the rule one way for coverage tests & another for ADP/ACP test? The rule is that all nonexcludible employees are HCEs. The same rule is used for coverage testing. If there is an NHCE eligible in the current year, you don't meet it. I'm not sure I follow you here. The prior year NHCE ADP was 5%. You use the 5% because that is the rule. I am fairly sure that the prior year rule is allowed to provide HCE's a level of certainty of their deferral amount. I don't see that the prior year rules change "No eligible NHCE" rules. I don't even see that it thwarts the purpose.

Oh no! Tom Poje & Blinky arrive at different answers. Who can we come to for help when 2 of the more prolific professionals do not agree? The sky is falling. In this case I would go with the fish. It is my understanding that whether or not sponsor can rely on the "No NHCE rule" is determined by looking at the current plan year.

I'm not aware of any requirement that contributions for the year in which they are allocated. When was the filing deadline? Its been awhile since I looked at the issue. I do seem to recall that as long as the contribution was made within 30 days of the due date of the tax return, that contribution would be an annual addition for the prior taxable year, employer would just have to deduct in the year made.

The TPA rarely ever has the authority to resolve any issue, but the TPA should be able to provide some sort of definition of partial termination for the client. The focus is whether or not termination was voluntary. The determination is based on all facts & circumstances. See IRS Reg. 1.411(d)-2(b)(1). In these situations we generally advise the cleint to consult an attorney. The good doctor might not waste his time and money over $1,600, but that is his decision.

I am inlcined to agree that the 2nd loan can be denied. As long as you apply the principle consistently, I don't see why you can't rely on the general "creditworthiness" provision.

Yes I totally agree. Oops I'm sorry its not 10/07 yet. You'll have to forgive me, I stayed up late watching my guy get his tail whipped in a debate last night.

Yes I totally agree

But as WDIK noticed, I won't let it go beyond 10/07. As a matter of fact I just may do every one of the posts in this thread. It will be a countdown to 100,000. Kind of like Time Square on New Years Eve, only not.

Is there a prize for guessing right? October 7th. If it doesn't go over before then I may just just continuosly post until the 100,000 mark is reached on 10/07.

We generally do strongly recommend that if plan sponsor is not going to use the safe harbor definiton that they have laundry list of specific reasons for which a hardship will be permitted. That may be a little conservative & I've read you don't need a laundry list as long as the standards are objective. I guess we probably aren't creative enough to remove the subjectivity from standards; it just seems easier to recommend a laundry list. §1.401(k)-1(d)(2) -- Rules applicable to hardship distributions--(i) Distribution must be on account of hardship. A distribution is treated as made after an employee's hardship for purposes of paragraph (d)(1)(ii) of this section only if it is made on account of the hardship. For purposes of this rule, a distribution is made on account of hardship only if the distribution both is made on account of an immediate and heavy financial need of the employee and is necessary to satisfy the financial need. The determination of the existence of an immediate and heavy financial need and of the amount necessary to meet the need must be made in accordance with nondiscriminatory and objective standards set forth in the plan. See section 411(d)(6) and the regulations thereunder.

Sure, as long as the plan doucment permits. §1.401(k)-1(d)(2)(iii) -- General hardship distribution standards--(A) Immediate and heavy financial need. Whether an employee has an immediate and heavy financial need is to be determined based on all relevant facts and circumstances. Generally, for example, the need to pay the funeral expenses of a family member would constitute an immediate and heavy financial need. A distribution made to an employee for the purchase of a boat or television would generally not constitute a distribution made on account of an immediate and heavy financial need. A financial need may be immediate and heavy even if it was reasonably foreseeable or voluntarily incurred by the employee.

For us it depends. 1. If its a daily val'd plan with an outside recorkeeper; the recordkeeper returns the excess before it is put into the account. 2. If its balance forward or for some other reason I amhandling; I do it the way you suggest for small amounts. Is that correct? Probably not, but practically if it is really deminimus, who cares. I highly doubt that either the IRS or the DOL would even notice $.50 or $1.00 & if they did I just don't think they will care.

We work with one recordkeeper that is now taking over the administration of loans. Thus far it has not been a good experience. They constantly fine tune their policies & don't communicate those changes well. That creates problems because the plan sponsor's loan programs often appear inconsistent with the recordkeeper's ever changing loan policies.

Not necessarily speaking to this situation because the facts seem somewhat unclear to me, but we will take some report, but that report must include numbers from every relevant line on the K-1, so it is really not much different than actually giving us the K-1. I'm not sure how most do it, but the K-1s we receive are preliminary in that they are prepared before any retirement plan contribution is considered; we factor in the retirement plan contribution. So at least in our cases additonal contributions won't change the numbers we receive. We will factor in those additional contributions. So yes I would still insist on receiving the actual K-1 or at least a report giving me the exact numbers off the relevant lines. I do agree that there has to be a certain level of trust between the TPA & the plan sponsor. If that level of trust is not there find a new TPA.

To be more accurate the plan year must be 12 months, except for a new plan which must be at least 3 months. It is an important distinction because its my understanding anyway that you could not have a short plan year after the initial plan year & still take advantage of the safe harbor. Why does the intial plan year have to be 3 months? Because IRS Notice 98-52 says so. I'm guessing the IRS is concerned about a new plan being established shortly before year end & effectivey benefitting only a handful of HCE's.

I learned that trick long time ago. We have to do that halfway frequently with top heavy tests. We get imports from an investment co., refunds for failed tests, excess deferrals, etc. come in not as distribs., but as negative contributions. Well that won't give you an accurate top heavy test. I have to go in there & change everything.

Never mind. I'm dumb; I see what I'm doing wrong. Thanks.

No, I pass the 70%, so I don't ever get to the ABPT. In short I want to use the 410(b) Summary Report. That report says you must pass ABPT, but that is wrong. You have to pass ABPT if you don't pass the 70%. I do pass the 70%, so the fact I fail ABPT doesn't matter. I want the 410(b) Summary Report to say that. Am I having a brain freeze & just missing something.

O.K. I see that now & it does look like I'm OK. I would really like to show the 410(b) Summary Report to the client though. That report still says I fail because it includes the Average Benefit % portion. Is there any way to get a 410(b) Summary Report that will somehow appropriately show I pass since my rate group ratios exceed 70%? Thanks for your help.