jpod

What does an unincorporated sole proprietor have to do to make an "election"?

Seems like there SHOULD be an easy solution: re-characterize as a regular but non-deductible IRA. Is there no basis in the regulations for doing something like that? Total speculation on my part, but it seems to warrant an easy solution because no taxes have been avoided to this point (unless they are beyond 70-1/2 already).

Without research I believe what I said is correct, but of course I cannot vouch for your custodian handling it correctly. I suggest you review the pertinent section of IRS Publication 590, which you can find at irs.gov.

I believe the $6,500 should not be taxed again when withdrawn per Section 408(d)(5)(A) of the Internal Revenue Code, and the 1099-R issued by the IRA Custodian should be coded by the Custodian to tell the IRS just that. The earnings will be taxable.

Of course it is compensation. The problem, however, is that the safe harbor in 1.414(s)-1©(3) allows you to exclude "fringe benefits (cash and noncash)," without telling us what a cash fringe benefit is!

Entirely different scenario here.

I had a similar issue recently. Nobody knows what the heck "taxable fringe benefits" means, and I haven't seen a plan document that bothered to expand upon it. My advice was it can be whatever the Plan Administrator deems it to include, as long as that interpretation is reasonable and consistent with prior interpretations (in other words, there's a lot of wiggle room provided you are consistent and can rationally distinguish a type of payment you wish to exclude from other types which you didn't exclude in the past).

If the party responsible for amending the plan is the "company" to which you refer (and not, for example, a committee appointed by that company), I think it is probably very safe to assume that the receiver and only the receiver can amend the plan, and no further court order is necessary. There is no Internal Revenue Code section or ERISA provision that addresses this.

I believe they don't have reliance on the opinion letter (I could be wrong about that), but even so they can use those documents.

Are they are happy being bound (presumably) contractually to all of the ERISA-required and Code-required provisions in the documents which otherwise wouldn't be applicable?

Can you give us more information? Why does the participant or his/her advisor think two forms should be used?

I am giving them the benefit of the doubt that a voluntary resignation prior to 3/31/16 resulted in a forfeiture, but you're right maybe I shouldn't have done that.

Here's another example (again, plan design merits aside). Plan has immediate eligibility for 401k elective contributions. Employer profit sharing contributions are subject to a 2-year service requirement but with immediate vesting; those contributions are typically well above 3% for everybody. Plan is top-heavy. Employer must make 3% contribution for non-keys not yet eligible for the profit sharing contributions. Why can't those contributions be subject to a 3-year cliff vesting requirement?

Let's put the wisdom of plan design aside for the sake of discussion. Here are a couple of examples. Assume in each case that the plan provides for a discretionary profit sharing contribution in an amount to be determined each year allocated in accordance with a safe harbor integrated formula, and that contribution is immediately vested. 1. Plan has a 1,000-hour requirement. For year x employer contributions at least 3% of compensation for all participants, including keys, except for participants with less than 1,000 hours. If plan is top-heavy for year x, employer must make a 3% contribution for the non-keys with less than 1,000 hours. If the plan document so provides, why can't the contribution for those participants be subject to a 3-year cliff vesting schedule? 2. No 1,000-hour requirement. For year y employer contributes enough to give everyone 2% up to SSTWB and 2% above SSTWB. If plan is top-heavy for year y, employer must make an additional contribution for each non-key to bring him/her up to at least 3%. Why can't that additional contribution be subject to a 3-year cliff?

Really? Part of the source is subject to immediate vesting. The make-up part is subject to 3-year cliff. That wouldn't work?

Not sure I am following you, Mike Preston. If a plan provides for immediate vesting on employer contributions generally, why can't it provide that any additional contributions necessary to satisfy TH will be subject to a 3-year cliff? That was what I was suggesting, but if it came out garbled that's my bad.

I agree with all the comments to the effect that the TH minimum vesting schedules are only minimums; vesting in a TH plan can certainly be more generous. As to one of the OP's questions, if the plan sponsor is generous and has immediate vesting for the contributions it makes intentionally, but wants to impose a 3-year cliff vesting schedule on additional contributions which Uncle Sam forces him to make due to the TH rules, that can be done (with care in drafting not to mention proper record-keeping).

If I may change the subject, because I am curious, is the intent that the 2017 installment won't be taxable until 2017 (rather than 2016 or earlier)? If so, with the President's termination of employment occurring in 2016, what is believed to be the "substantial risk of forfeiture" that defers taxation until 2017?

And, by the way, paying yourself only $70,000 may not be kosher under the "reasonable compensation" principle, and the IRS could attempt to assess back social security and medicare taxes against your LLC. That's a different but somewhat related issue to consider.

Right now you and your LLC are saving SIGNIFICANT social security and medicare taxes by paying yourself only $70K. To compare apples to apples you will have to carefully consider the extra social security and medicare taxes you will have to pay by boosting your W-2 payments.

Was there really an "operational error" here that could trigger disqualification? The error was not treating the contributions as pre-tax for W-2 reporting and income tax withholding purposes, and the correction is for the employer to file corrected W-2s and the participants to file amended returns seeking refunds. I can argue with a straight face that the mischaracterization of the contributions as Roth in the plan's records is not a disqualifying defect and can be corrected without regard to EPCRS. With that said, however, I expect that if the employer can show that if it offered the Roth option uniformly since DATE X the IRS would be willing to bless a retroactive amendment through VCP and wouldn't get bogged down in the issue of whether this is truly an operational error or not.

Isn't the master trust filing voluntary, in which case how could there be a penalty? I think the risk stemming from the master trust not filing timely is that the underlying plans' 5500s could be deemed deficient (assuming they took advantage of the rules relieving them of the obligation to report information on the master trust's holdings and p&l).

It may be in the participant's interest too. With a QDRO everything paid to ex-spouse is taxed to her. If per divorce decree he simply pays over money to ex-spouse, which it seems he is compelled to do, it's all taxed to him and he may not be entitled to an offsetting deduction.

Whatever the answer, it seems that trying to thread this needle is a waste of time. Why can't the plan be set up with a US financial institution that will serve as custodian or directed trustee?

FGC: Can you try that citation one more time?