Belgarath

No, they wouldn't be precluded from using this provider. It could just affect the deduction pattern. In IRS publication 560, there's an example of just such a situation you are referring to - I think you'll find it helpful. It is under the SEP section, "When to deduct contributions." Yes, there are SEP providers who have custom documents. I do not specifically know who they are or how to locate them, but I'd probably start with a web search. And probably other folks here know of some specific providers. I expect some of the big mutual fund houses may have custom docs.

Bob, I'd remember the old adage, "free advice is worth what you pay for it." That includes the free advice I'm about to post! I agree with what the other folks have posted, but the comment likely to be the most helpful to you is Blinky's. Hire someone who knows what they are doing! $55,000 is a lot of money. At least to me. I doubt you would consider closing a real estate deal, for example, for 55K without engaging the services of an attorney. Maybe you would, and more power to you. But it shouldn't really cost you that much to find a local CPA, TPA, attorney, etc., to guide you through this. It is indeed likely to be, for someone versed in these matters, a pretty easy process. But it also is impossible for any of us here, without knowing your plan or documents, to be certain of that. I will say that I've seen many, many, many disasters on these "easy" one-person plans that are administered or terminated improperly. I'm not suggesting that you aren't capable of handling it yourself, but I am suggesting that the possibility of a problem is much greater. Is it worth the risk? Good luck to you with whatever approach you choose!

Thanks. That's what I had decided, but it sure is nice to have someone else agree!

I received a question today, for which I'm uncertain of the answer. Wondered if any of y'all have run into this. Small plan has life insurance on a participant. Participant dies. Insurance proceeds are paid to the plan, deposited into participant's account, and subsequently distributed to participant's beneficiary. How do you account for this on the Schedule I? Is it considered a "noncash contribution" on the Line 2b? I wouldn't think so, but it doesn't seem to "fit" any category. I believe it would all be reported as a distribution on Line 2e, but I'm having trouble figuring out where the death proceeds paid to the plan should be reported. On line 2c? Thanks.

Remember the three statisticians who went duck hunting? The first one shot a foot high, the second shot a foot low, and the third one said, "We got it!"

This is an interesting thread. Just to toss out another thought, speaking as a neophyte in these matters. What about a Roth IRA? Don't know if original poster is eligible, or how much he can contribute each year, but assuming he is eligible and his desired amount to put away each year doesn't exceed the Roth limits, how would this be? Provides a lot of flexibility and tax free growth. Total control in case kids decide not to go to college, or receive a full scholarship, etc.. Is this a reasonable possible approach, or are there reasons why it is either bad or something else like the 529 is much better?

I've refrained from commenting because discussion on these boards involving insurance tends to get a little heated. However... First, I don't sell anything!!! And I have a long standing belief that insurance is not generally suitable as an "investment." Insurance should only be sold to someone who needs insurance. That having been said, I'm certainly open minded enough to consider that there may be situations where an insurance or annuity policy might be a reasonable choice. Assuming for the moment that the parent does in fact need life insurance, and also wants to save for a child's college education commencing in 11 years, you'd then have to crunch the numbers. Term insurance for 11 years would cost you (x). The rest of the money invested in various investments alternatives would net you out several different numbers. If the same number of dollars paid into the insurance policy, when surrendered in 11 years, net you out a number of dollars that falls within the normal range of the competing investment alternatives, then I'm not sure where the harm is? Now, will this happen? Is such a policy or policies available? I can't possibly say. I'll also say this. Yes, some policy commissions are grotesque. Some surrender charges are absurd. But some mutual funds or stocks stink, and some policies provide a "reasonable" return. There are some people who simply do not want to invest in stocks, mutual funds, whatever. It's their money, and they have the right to invest as they feel comfortable. Lots of them put it into bank CD's. I don't hear much bad talk about them, but they generally pay a relatively low rate and are currently taxable. And they have a surrender charge. Want to talk about "commissions?" The same bank that pays you 3% on your CD charges loan rates a whole lot higher. Isn't this comparable to a commission? My point is not to bash banks and CD's, because they serve a useful purpose, and are the right choice for many investors. My parents purchased a deferred annuity a few years ago. It had a 7 year decreasing surrender charge, and a 4.5% guaranteed interest rate. They are people with low risk tolerance, and they can sleep nights with this investment. And they are mighty happy to still be receiving 4.5%. It was a good investment for THEM. My in-laws prefer CD's. Both of them receive a positive rate of return, with low risk. This is what they WANT. So there you have it - beauty, and good investments, are sometimes in the eye of the beholder. Would I ever advise anyone on an investment? Absolutely not, because I'm no expert. But I do believe it is in my best interests as a TPA to remain open minded - I, for example, don't like variable annuities, particularly in qualified plans. But I'm certainly willing to consider other reasonable viewpoints.

Thank you! For some reason I just wasn't making this connection.

In general, I think it does eliminate the four year lookback. But I don't read it to in all situations. For example, a terminated plan where the employees don't terminate employment, or it isn't death or disability. If you look at 416(g)(3)(B), to me this indicates that you'd go to a 5 year lookback if it were just a plan termination. However, this is just my opinion - I haven't seen anything specific from the IRS one way or the other.

Ending in 2005. You have the correct reference. EGTRRA 611 specified that the statutory increase under EGTRRA (to 40,000) wasn't effective until limitation years BEGINNING on or after 1/1/02, but the COLAs are effective for limitation years ending in the calendar year, as you mention.

It really depends on a lot of factors. If the person asking the question is referred by a CPA or attorney who does business with us, then I'd generally answer, up to a certain point. But I also generally keep them on a mighty short leash, and cut them off earlier rather than later.

Don't know if this will help, but it is from the instructions for the Schedule SE. If you were married and both you and your spouse were partners in a partnership, each of you must pay SE tax on your own share of the partnership income. Each of you must file a Schedule SE and report the partnership income or loss on Schedule E (Form 1040), Part II, for income tax pur- poses.

I didn't focus on the words "consisting solely of the doctor." I was thinking more in general terms, as you can see by my example. So I agree with Effen!

Try Proposed Reg. 1.411(b)-2(b)(4)(iv), example (3).

I don't know, offhand, without looking at 2003-44. But I can tell you what I suspect most clients and accountants will say if the amounts are truly small and it was a one-year error 4 years ago. Most of them will give you a resounding "ignore it" - particularly if the cost of correction (TPA, CPA, lawyer fees) exceeds the amount of money involved. I'm not advocating this approach, mind you, just telling you what I suspect is a likely response.

Not necessarily. You have to include them for nondiscrimination testing purposes. Suppose the medical company has 15 employees, all of whom are covered. If the nonmedical company has only 5 employees, then they could be excluded and you'd still pass your 70% test. Of course, in real life the situation is usually exaclty the opposite. They want to cover the business with the owner and spouse, and exclude everyone else!

Well, you could look at DFVC. The small plan cap is 1,500.00, so the monetary penalty is relatively small. Alternatively, you could call the DOL and explain the situation. 'Tis possible that since timely forms were filed each year, that they might be reasonable and allow you to file proper forms with no penalty. Personally, I'd try this first, and if they aren't reasonable, then file under DFVC. I've heard anecdotal evidence that since DFVC is now available, the DOL is less willing to totally waive penalties, but I have no direct experience with this - the situations I've had to deal with have been simple DFVC - someone didn't file at all, for example. Your situation is a bit different. I'll be interested to see if anyone has "war stories" on a similar situation.

Yes.

Since I take a rather strict constructionist view of such questions, I find all this somewhat mystifying. We don't do "designer" DB plans, and the documents that I see are generally prototypes, but the language is unambiguous. You can IRREVOCABLY waive participation. If that's what the document says, then you can't revoke it just because you think you might get away with it. Or at least you shouldn't... If the document says that it is REVOCABLE, then you can apply for a determination letter to confirm if this aspect is acceptable. Or if there's already a letter allowing such a scheme, then you should be ok. It seems pretty black and white to me, which makes me assume I'm missing the point.

No.

I think Qdrophile is right. But I also think that the plan terms will be required to contain certain restrictions. For example - a pension plan generally can't allow in-service withdrawals unless you have attained normal retirement age. So you couldn't have a hardship withdrawal allowed for a 25 year old who hasn't terminated employment, because the IRS wouldn't approve such a provision. And in a PS plan, then you'd have to have satisfied restrictions other than purely hardship - for example, the "2 year" rule before a hardship could be allowed. Qdrophile, does that jibe with your understanding?

I don't believe so. See 1.401(k)-1(d)(2)(ii.) I think you are limited to deferrals only, whether you are using the safe harbor or not.

The ROTH contribution is made from after-tax income, and has no bearing upon the qualified plan calculations.

Qdrophile - you are absolutely correct. For our plans, the employer is always the fiduciary, so I'm subject to a Pavlovian response where I equate the two on questions of this type.

Ran into a situation today I haven't seen, and although I THINK I know the answer, I'd appreciate opinions. This is a relatively new plan - adopted 10/03, effective date 1-1-03. Client signed an UNAPPROVED copy of a prototype sponsor's GUST document. Client has not yet signed the APPROVED document. I believe that under the general procedures in 1.401(b)-1(d), they only had up to the extended tax filing deadline (in this case, 9-15-04) to adopt an approved GUST document. I'm not sure they have any option except to file as a nonamender under 2003-44. Any other thoughts, or anything I'm missing? Appreciate any thoughts on this.