Belgarath

Interesting question. See below from the 2022 1099-R instructions. However, I haven't considered whether this person is an IRA "owner" or not, given the circumstances. That might require some substantial research, although there are folks here who can probably answer this easily. Prohibited transactions. If an IRA owner engages in a prohibited transaction with respect to an IRA, the assets of the IRA are treated as distributed on the first day of the tax year in which the prohibited transaction occurs. IRAs that hold non-marketable securities and/or closely held investments, in which the IRA owner effectively controls the underlying assets of such securities or investments, have a greater potential for resulting in a prohibited transaction. Enter Code 5 in box 7.

It's pretty clear under Section 6.02(2), and Appendix A, .01(3) that other reasonable corrections are permitted. But of course, facts and circumstances...

That's a question for a CPA. If his LLC is taxed as unincorporated, then his compensation for plan purposes is earned income. If he's taxed as an S-corp or a corp, then it is, for all practical purposes, W-2 or some other allowable definition. If his LLC gets an influx of cash via a loan from a bank, etc., can any of that be used to raise his "salary" from the LLC? Beats me - again, question for a CPA.

If it is "totally separate" - how could he shift earnings? Based purely on the limited information provided, I'd say no. But maybe there is more detailed information on the facts and circumstances that might change this - for example, if he could have some of the patients come to him in his LLC, without creating an Affiliated Services Group.

Yes, it will be a large plan as of 1/1/2023. And no, I can't see why you are being told there is an audit required for 2022, unless perhaps due to non-qualifying assets and the bonding/disclosure requirements for the small plan audit waiver aren't being satisfied? But if that were the case, presumably whoever is telling you this would be able to provide their reasoning? P.S. - I'm assuming the Plan Year remains as calendar year after the merger.

Hi Eileen - just to clarify, are you saying you cannot correct this under RP 2021-30, Appendix B, Section 2.07(4), or are you providing instructions on one normal correction for this error? Thanks.

Are you using a pre-approved document? Most of the pre-approved documents I've seen provide at least a "boilerplate" specimen Trust Agreement, which would often have language for directed Trustees, and for discretionary Trustees. But there's nothing wrong with a Trust Agreement providing specifically for directed Trustees only.

We would toss them out of the test.

I have no idea, but the attached article provides some interesting information. https://www.cpajournal.com/2019/10/28/defining-reasonable-compensation-under-the-tax-code/

I think Kevin's post hits the nail on the head.

"My suggestion - which is not to be construed as tax or legal advice - would be to do it first from Roth, as "most" people prefer to keep the current tax deduction. But if you don't like my recommendation, feel free to do it however you want. It's ultimately your choice anyway."

If you have access to the EOB, there is a paragraph on this subject in the definition of "key employee." I think you would find it very helpful. But it basically agrees with your thinking on this. However, it also references an 83(b) election, and refers you to RR 2012-29 for guidance on 83(b) elections. (Edited for typo)

At least in our plans, it is operationally determined by the Plan Administrator. However, I do believe that one or more recordkeeping platforms may require that it all come first from one source or the other. Don't know why I say that, except that I seem to recall it on a plan, but that was years ago, when Roth was still not used all that much. Might not be that way now.

Nope, by certified I just mean something in writing from the client giving the salary amounts (e-mail, letter, whatever). The fact that they give us salary and hours (if applicable) in writing is sufficient for our purposes - it pretty well "certifies" that they are actually working there. As opposed to a phone call where we write it down. Just to cover our posterior...

You work without certified census data? Yeesh, I wouldn't go out on that limb...but I expect that's maybe not quite what you meant?

There's always something new in this business, isn't there? Do they certify to you, in writing, that these people work there, and that their W-2 (or Schedule C, whatever) is "x" amount, that supports the contributions? If not, (and this is just me) I'd resign post-haste. I wouldn't want to knowingly be complicit in tax fraud. Sounds like a pretty unusual situation...

Thanks Peter - we had already reached out to ask these very questions, but as yet have received no answers.

Gracias.

So I'm struggling with this - distribution from a Defined Benefit plan - participant wants to roll into a Roth account in a Governmental 457(b) Plan. I'm thinking it must be rolled into the 457(b) plan as non-Roth, then converted as an on-plan Roth rollover. But that seems stupid - can it just be rolled directly to the Roth account in the 457(b) (and of course reported as taxable)?

Without having time to go into details, I'll just say that I personally find the "20 hour" exclusion to be an invitation to disaster. Nearly guaranteed screw-ups at some point. Like you, I try to always have a plan allow deferrals for all...

Assuming the employee is a NHC, this can be corrected by a retroactive plan amendment. See Revenue Procedure 2021-30, Appendix B, Section 2.07(4)

An excerpt from IRS Notice 2018-95 - and short answer is that in your example, you can exclude them under the "20 hour" exclusion. Emphasis is mine. The provision imposes three separate conditions for an employee to be excluded from making elective deferrals under the part-time exclusion: (1) a “first-year” exclusion condition, (2) a “preceding-year” exclusion condition, and (3) the OIAI (“Once In Always In”) exclusion condition. Under the first-year exclusion condition, in order to exclude the employee from making elective deferrals, the employer must reasonably expect the employee to work fewer than 1,000 hours during the employee’s first year of employment. Under the preceding-year exclusion condition, in order to exclude the employee from making elective deferrals in an exclusion year ending after the first year of employment, the employee must have actually worked fewer than 1,000 hours in the preceding 12-month period.

See the following excerpt from IRS Notice 2020-52. the situation at =hand is this: SH nonelective plan, and the HCE's are excluded from receiving the SH contribution, although a "discretionary" SH contribution may be made on their behalf. They want to amend plan to exclude bonuses for Non-owner HCE's. No problem doing this with a 30 day notice, as the bonuses wouldn't be paid until close to year-end (2022) anyway. I'm curious as to opinions on whether the 30 day notice is required in the following particular situation: No notice - just amend currently with no notice (if it ever comes). I think it is, to be safe, but maybe I'm being overly conservative. III. CLARIFICATION OF REQUIREMENTS FOR REDUCING CONTRIBUTIONS MADE ON BEHALF OF HCEs As described in section II.B of this notice, contributions made on behalf of HCEs are not included in the definition of safe harbor contributions. Accordingly, a mid-year change that reduces only contributions made on behalf of HCEs is not a reduction or suspension of safe harbor contributions described in §§ 1.401(k)-3(g) and 1.401(m)-3(h). However, a mid-year change that reduces only contributions made on behalf of HCEs would be a mid-year change to a plan’s required safe harbor notice content for purposes of section III.B of Notice 2016-16. Therefore, in order to satisfy the notice and election opportunity conditions of section III.C of Notice 2016-16, which apply generally to changes that affect required safe harbor notice content and are not reductions or suspensions of safe harbor contributions, an updated safe harbor notice and an election opportunity must be provided to HCEs to whom the mid-year change applies, determined as of the date of issuance of the updated safe harbor notice.1

Well, that's the crux of the question. I've only seen this a couple of times, and both times they would have been considered eligible "wages" for plan purposes, and as you mentioned, under 415, the allocation would be based on the limitation year to which they relate. Unless the restorative amount was for an otherwise excluded wage category (a bonus, for example) then I'd say you would include it as eligible wages for the plan/limitation year in question.

Here's my concern. My understanding is that the "notes" in a pre-approved document are an integral part of the document and approval, and not merely "comments" that are purely informational. So in this case, does this provision make them lose reliance, such that they need to go through VCP? At the very least, I'd have them amend the plan to a "normal" new comparability allocation election.