Belgarath

So Peter, what happens if the plan doesn't "allow" a beneficiary to disclaim? Suppose the plan eventually cuts a check to the beneficiary, and the beneficiary refuses to cash it, etc., etc. - and maybe this gets into deep mud, and please don't waste a lot of time on this on my account - just idle curiosity on my part. Thanks.

I agree with Bri. These "pass through" distributions aren't eligible for plan purposes. There was a court case way back, (Durando) that ruled an S-corporation owner could not have a plan as a self employed. Therefore, W-2 as a common law employee is what is used. Also, I'm quite sure the IRS has publicly taken this approach, although I couldn't give you a specific citation or reference.

I agree.

Based on what I've seen I believe it is FIS (Relius), but I can't state that with absolute certainty.

Thanks. Makes sense to me!

So, suppose the 12/31/2021 statement was already mailed, but without the lifetime income illustration. Can the illustration be sent now as a "stand alone" or must the EBS be re-sent with the lifetime illustration attached? I believe it is the latter - I haven't seen anything allowing a stand-alone in this situation - wondered if I've missed anything.

Under 401(a)(26)(A)(ii)(II), if there is only one employee, it doesn't have to have 2 benefiting. Under 1.401(a)(26)-2(b), a frozen plan is deemed to satisfy 401(a)(26), assuming it passes the prior benefit structure test. If there have never been any employees, I don't see how it could fail. But I'm not a DB person, so maybe someone else comes up with a different result somehow?

It seems questionable to me that the following is permissible, but thought I'd solicit other opinions, as it is a sticky question. Thoughts? Thanks! Plan is a QACA, with 1-year vesting. The plan currently utilizes the Plan Year (calendar) as the vesting computation period. Client wants to amend the plan, for vesting purposes only, in 2022, to be elapsed time. At the very least, even IF it is permissible, it would require a 30 day advanced notice. Is it permissible? When the service crediting method is changed from Years of Service to Periods of Service, the participant receives credit for the GREATER of ..."(the Periods of Service that would be credited to the Employee under the elapsed time method for service during the entire computation period in which the transfer occurs, or the service taken into account under the Hour of Service method as of the date of the amendment.)" So, let's say a participant has less than 1,000 hours as of the date of the amendment - let's say May 1. Participant would receive 5 months of service as credit toward a "Period of Service." But, let's say participant terminates employment in October, with 1,000 hours or more of service. Participant would only get credit for 10 months toward a "period of service" for vesting purposes, so would NOT have a 12-month Period of Service, but would have had 1-year of service for vesting under the prior method. This would seem to violate the following requirement of IRS Notice 2016-16 for prohibited mid-year amendments. (My emphasis) 1. A mid-year change to increase the number of completed years of service required for an employee to have a nonforfeitable right to the employee’s account balance attributable to safe harbor contributions under a QACA pursuant to the safe harbor rules under § 1.401(k)-3(k)(3) or 1.401(m)-3(a)(2).

Ugh, I missed that - not sure how. Thanks!

PS Plan has no allocation requirements for contribution. Participant terminates in December of 2020, has eligible post-severance comp the next year (2021) so receives 2021 allocation, but has zero hours. Would you include in coverage testing for 2021, or toss out? I'd include - I don't see how this meets the 410(b) requirements for the term w/<500 hour exclusion. A bit of discussion going on with this question. Thanks for any opinions.

Without doing any digging, I believe the the answer is no. For non-spouse beneficiaries, you can't treat it as your own IRA and roll money into or out of it. However, this is from memory, and I haven't looked for citations or back-up. My brain has pretty much turned to Swiss Cheese at this point...

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...