Mike Preston

Even if so, taxing $500,000 in one year is far less than taxing $50,000 each year for 10 years, right?

As I understand it, the goal is to have the value of the payments subject to payroll taxes in a year where there is significant other income so that, in effect, the employee has already reached with Wage Base and therefore the effective tax rate is greatly diminished.

Plans, whether they be 401(k)'s or SEP's, for restaurants are fraught with administrative issues and very, very, very difficult to get right. In a perfect world you would be able to prove whoever told you that your employees would need to be covered under a plan for your husband is wrong. Then, at the least, he could set up a plan for himself and leave the restaurant out of it. But they are probably right, because you have to satisfy quite a few requirements to be able to scissor the two businesses and, most likely you will fail one or more. Briefly: 1) You don't live in a community property state 2) He doesn't help at the restaurant (either as an employee or otherwise) and you don't help him in his business (either as an employee or otherwise) 3) His business doesn't generate more than 1/2 of it's gross revenues from passive investments (this one is not generally a concern) 4) Your husband is free to sell his business to an unrelated person without your approval or the approval of a third party acting on behalf of a minor child. It's a longshot, but if you do satisfy all those rules then the advice you have been given is wrong and, by far, the easiest thing for him to do would be to establish a 401(k) for himself and forget about the restaurant. If the advice is correct then the best thing to do, as already indicated by spiritrider is to gather up all the information you have and get a pension professional to look at it for you. What you want is to list, by calendar year, every employee with date of birth, date of hire, hours worked during the year and compensation paid to them during the year. You need to do this for EVERYBODY, no matter how few hours they work in any given year. You need to do this for at least five years prior to the first year you want to establish a plan for. If you are thinking about 2016 (for a SEP, assuming your 2016 personal tax return is still on extension) that means from 2011 through 2016. If you are thinking about 2017 (which would be required for a 401(k), but could also apply to a SEP) that means from 2012 through 2017. Then you need to provide copies of both you and your husband's IRS Forms 1040-Schedule SE for all years in question. To the extent you are including 2017 in your deliberations you have to guess at some of this information, but guess you must, because nobody is better positioned to do so than you are. A word of caution: many restaurant owners chafe at properly reporting compensation for those employees who receive tips. The rules are complex. Before you involve a pension professional you need to check with a CPA to ensure that you understand how to accurately report compensation for those employees who receive tips. If you can put all that information together a pension professional should be able to tell you what your options are with very little effort. And if somebody says they can give you thorough advice without seeing all of the information I've mentioned, ask for a reason that the information isn't necessary. Good luck.

Consider yourself corrected. It really, really says what I said. Honest. Maybe somebody else has the time to parse the language.

Aren't the two companies in a controlled group?

How does either get around the code requirement?

Not if the sale proceeds are used to fund the plan...

Yes.

Can somebody explain what FormsRstillmylife is saying?

I'm going to go in a completely different direction. While I don't think it matters as to what happens from here on out, I like to know the complete circumstances so can the OP, PAM, please report as to whether the amount received was rolled into an IRA or other qualified plan? The theory that has the best optics is one that revolves around the liquidity exception relative to the prohibited transaction rules. Of course, claiming that this applies requires one to substantiate the plan having a lack of liquidity....probably a tall order. Notwithstanding the liquidity exception, this happens all the time. The "solution" is to restore the plan to the position it would have been in had it made the distribution properly and otherwise report what actually happened. So, issue a 1099-R with the payor being the plan sponsor. It is late. Have the plan "re-pay" the "loan" (if you think the liquidity exception applies) or "reimburse" the plan sponsor for having advanced the distribution. Consider reimbursing less that the full amount if the plan has suffered a loss between the two dates, but if it is really a pooled account, I'd be sorely tempted to ignore earnings completely in the determination of the re-payment. A bit messy and that is always a bit discomfiting. But double paying doesn't seem right to me, either. As always, we recommend that ERISA counsel bless the course of action, whatever is decided.

Lots of detail missing. And it matters. If both were Trustees then as of the date that Bob left the business, remaining owner should have invoked document procedure to remove Bob as Trustee and taken control of all of those assets. Still can be done, but may be more difficult to corral the assets at this point, especially if a distribution has taken place. Contact whoever was doing the 5500-EZ (or -SF) and see if you can establish where the assets were (i.e, at what financial institution) as of a given date. Follow the document procedure to establish remaining owner as sole Trustee and then, as Trustee, try to communicate with said financial institution. A tedious process awaits. Good luck.

Enrolled Actuary Enrolled Actuary - ethics only

That is indeed what I'm saying.

If somebody is held out of a plan for a period of time that exceeds what would have been called for by a 1 year wait, they must be 100% vested.

Yes.

I don't have time to go into detail, but I think if you do enough research you will find that there are some fairly disturbing conclusions regarding the ability to reimburse a participant for charges already settled. The most obvious circumstance is one where a credit card is used to pay for an emergency medical procedure and the participant immediately asks for a hardship in order to pay the credit card company. Most of us, I would think, would say this qualifies. However, there are some who disagree, and by some I mean the IRS and Treasury have at times disagreed. Here is a cite to a fairly detailed hardship policy that appears to recognize the issue and makes a credit card exception only for "Medical Credit Cards" (whatever they are). http://laborunions401k.com/wp-content/uploads/2014/10/Explanation-of-Hardship-and-Supporting-Documentation.pdf I can't possibly see how reimbursement of funds deposited into escrow, whether due to closing costs or not, could possibly survive.

I have a slightly different take on it but the conclusion is the same: the distributions are rollable. I would just recommend that the governmental employer write the checks from their own account and issue 1099-R's from their own EIN indicating the funds are rollable. No muss. No fuss.

I think you mean 2016-51.

Just file under dfvcp now.

Yes, but it is more technically accurate to say that you need to include the 401(k) deferrals for average benefit test purposes. Does the 401(k) plan allow for anything other than deferrals?

Did he try freeerisa.com?

I think 2 is moot. Would love to see chapter and verse in support or in opposition.

It has been pointed out to me that the controlling regulations under 1.411(a)-8(a) can be (should be?) interpreted to support $0.02's statement that a participant's vesting %-age can not be reduced.

Only if PBGC covered, right? This is a small professional firm that most likely isn't covered by PBGC.

$0.02, please re-read the above and say out loud: "3 year rule". Because I'm just as confident that if a participant has less than 3 years, the vesting schedule can be reduced. I *think* the way it works is that the vesting schedule change results in a 411(d)(6) protected benefit of 100% times accrued benefit (or account balance) on the day the vesting schedule changes. And just to clear up some confusion, a change in law "way back when" eliminated the ability to provide for class year vesting schedules, so I'd be very careful before implementing a change that even smells like a class year vesting schedule.