Jim Chad

As far as I know, an owner only 401(k) is not subject to ERISA. I think Title 1 tells which plans are subject to ERISA. That is why if you are late filing a 5500 for an owner only plan, you only have to deal with the IRS.

It looks like they are playing it safe. As Tom says there is no clear guidance. FWIW I would exclude for 18 months.

Most documents would say that employee enters 7-1-08. People who hire 7-1 or 7-2 can be a nightmare. Lets say ee hired 7-5-07, your plan brings them in 10-1-08. But the plan could legally exclude them until 1-1-09. So they can be separated for testing. Is he an HCE or NHCE?

FWIW I think it would be correct to test both plans together for whole year.

I am sorry I didn't make something clear. To use round numbers, w-2 shows $100,000. But in fact he received $100,000 plus the $15,500 went in to the investment company. I guess the $15,500 was supposed to be part of a bonus check where the gross was just enough to equal $15,500 plus taxes =0 Also it is a SHNEC plan so no ADP test problems. Austin makes a good case for amending the paperwork now. My next question brings to mind pigs and hogs. They actually sent in $31,000 but paid his wife -0- this year to save on medicare taxes. She has always been in the plan and because of all of her office duties has been paid $25,000 in prior years. I was going to use this $15,500 for the SHNEC plus a discretionary non-elective, which he did not want to do. But what do you all think of amending things to get her a net comp of zero and $15,500 plus required taxes?

I have several Plans where the match is paid monthly but the doc is annual. And of course all of my 3% SHNEC plans that pay monthly also need a true up. I had an idea that would make this easy and I wonder if anyone sees a problem. If you have imported contribution amounts into census that overrides anything Relius would calculate. And Relius calculates nothing unless you delete the import. I am thinking about setting up weekly payrolls and importing into the second to the last payday that month or year. Than we can do a " last pay day" contribution transaction using "year to date minus prior" to get the true up amounts. Now my question: Does anyone see a problem with always importing into the second to the last pay day on all plans as a standard operating procedure?

Good Point! I had forgotten that. Thanks, John.

Once again this year, an employer sent $15,500 to the investment company 11-2-08 and told his CPA. The CPA who doesn't do the payroll personally, never thought to tell his staff to run this through payroll. W-2 is wrong and so are medicare taxes. This is a 5 year old plan. The employer blames me, because his wife told me about it and asked if there was anything else for her to do. I never thought of payroll and said no. Everything will be fixed through amending. But my question is: how do other people prevent or at least diminish this occurrence?

FWIW I think that Washington Mutual should have sent the money back to Fidelity to this Participant's account since they should never have received it in the first place. And then they would have done all of the 1099's and probably done it right. If they had been instructed to do this, I don't know if they would have. Now I think he should talk to his CPA or his local tax office and see what they say he should do. Personally, I would write a letter with my tax return explaining it. I wonder if a CPA would recommend he claim both 1099's on his 1040, but then reduce his taxable income by the $1,500 on the same 1040.

Perfect! Thanks, WDIK. By the way.....your using WDIK for a name always makes me smile.

I have a plan where Discretionary non-elective contributions were never expected. The document has everyone in their own group. The owner is very young so cross testing will not work. Can I use the same permitted disparity that would be allowed if the document said integrate at $50,000?

Austin Doesn't that make the answer to Lori's question "no"? Or do I need another cup of coffee?

Austin, That surprises me. Would you expand on your one word answer?

I believe you are right about the 1099. And if it went directly to an IRA or other qualified plan I would send a notice to them that part of the money is not eligible to be in an IRA.

Chippy: Sieve brings up some good points. Is the 3% what the employer would like to put in as a total counting the match, the discretionary non-elective, and Top Heavy? Or is the the 3% what the employer wants to put in after he has already put in the match?

FWIW I would think rerunning the ADP test would be required......but that might just be because I'm in a very cynical mood. I cannot remember ever reading about rerunning the ADP test in Rev Proc 2008-50 on EPCRS. I just ran a word search and "rerun" is not in there..... so maybe not. Anyone else have any ideas?

I was going with "Who's the Employer/" by Derrin Watson. Q 8:43 say "The component member rules do not apply to qualified plans or other employee benefit plans referring to code section 414(b)" By the way How do you make the symbol for section here? I am using firefox.

Did an Key employee defer more than 3%? If yes, I would allocate the match, I would allocate the rest of the dollars per the document......which I would guess would be pro rata since it is such a small amount. In my documents, you would run out of dollars before getting to the permitted disparity part. Then the Employer would have to add enough dollars to bring everyone up to 3% of whole years comp. I mean everyone eligible for TH per the doc. FWIW

Maybe it will help if you think of the two employer as AB= High CPA firm, Inc. and BC = Low Pension firm, Inc. And there are a few employees that work at each. Let's say that Mr. Bad Luck works for both and when you run the ADP for the High CPA firm. Inc. the test says he must take a refund of $500(Assume employer will not do QNECS). Then you run the test for the Low Pension firm, Inc. and the test fails here too. Let's say that Mr. Luck has to take out $400. This is already done, so he is all set. Or let's say he has to take out $800. I believe you would distribute an additional $300. In other words I would count the $500 he was already paid. I would not reduce prior to running second test. The money is part of last year's deferrals. Everyone else, What do you think? Am I missing something?

j Simmons: I have a question for you. How did you find this? Do you use a computer or books or??... We are a small CPA firm and we have a service we load to our network every month. If I know the code section, I can navigate to it just fine. But I almost never am able to find a topic using the search features.

Another thing to look at is the management controlled group type of ASG. For this type of group under common control, there is no cross ownership needed. And I think you have one here. To get a handle on this, I strongly....very strongly recommend Derrin Watson's book, "Who's The Employer" I have the impression that no one is smart enough to look at a fact situation and decide that is not a group under common control. I know that I am not. Instead, I go through the chapter on each type and eliminate it or not, one type at a time. The book also talks about statutory employees and statutory non-employees, including licensed real estate brokers.

I believe that line is not connected to deductibility at all. For example, it is legal to do this form on a strictly cash basis if the plan has no required funding. In which case some of the money received by the plan this year was deducted on the previous years' tax return. I have been thinking about what I would do. I would send a letter to the PA saying waahat I think is deductible on 1040 or w-2 and what I think is deductible on the employer tax return. If that doesn't work a question needs to be asked...... Does the CPA want to take responsibility for the way the form 5500 is filled out? If yes, I would let him fill it out his way. The consequences on an audit won't be too serious to the employer....especially if the CPA has malpractice insurance. Here are some ideas.....hope they help.

If the $100,000 was treated like a inservice distribution that was not allowed, I agree with forksnknives. There is no previous loan balance. FWIW

I don't have the excuse that it is too late. Today my excuse is computers. Gosh!! I love them. What is the equation to add up to the preliminary profit number for a sole proprietor? Employee's contrib+Owner's contrib+owner's reduced comp+ 1/2 of SE income = preliminary profit Is this right or am I missing something?

Has anyone done a distribution where part of it was ROTH? If they roll it over, (and presently have no where to roll it to)do they have to set up a traditional IRA and a Roth IRA? Should the money be sent as two checks? I remember that I am required to report basis to new IRA within a short time. Is there a specific IRS form for that? What Am I missing?