spiritrider

Without going through a plan, such contributions would be considered taxable fringe benefits. A much better and more cost effective option might be a QSEHRA.

Correct, as long as the side business is not considered a controlled or affiliated service group with the employer. Assuming no employees, they might be better off contributing to a SEP IRA for the 2019 tax year*, adopting a one-participant 401k plan for the 2020 tax year, rolling over the SEP IRA and contributing to the 401k plan going forward. *Up to and including 2019, an employer had to adopt a 401k by 12/31 of the tax year. This has been changed by the SECURE Act. Starting for the 2020 tax year, an employer now has until their tax filing deadline including extensions to adopt a 401k plan.

See Correcting Required Minimum Distribution Failures Of note, "you can use SCP to correct a RMD failure even if the plan is under an Employee Plans examination. However, participant-owed excise tax under IRC section 4974 can’t be waived under SCP." So with this many missed RMDs, you will probably want to do a VCP filing.

I don't really have full answers, just observations. This all assumes that there are no non-partner/spouse employees I have only seen this construct when it is entirely a partnership of corporations. In that case the partnership does not have a 401k plan. Rather each corporation has the option of adopting a 401k plan. Having individual partners complicates this, because individual partners are not employers and are not eligible to adopt their own 401k plan. Only the partnership is eligible to adopt a 401k plan. Basing employee deferrals and employer contributions only on guaranteed payments limits employer contributions My guess is that the partnership adopting the the 401k plan and having guaranteed payments to all "partners" was an attempted workaround to allow individual partners to have access to a 401k plan. However in the case of the S-Corps, they are the partner and the S-Corp 2% shareholder-employees are not partners and I don't see how they are eligible to participate in the partnership's 401k plan. It would seem to me that the best solution is for the entirety of the partnership's partners to be S-Corps or the entirety of partnership's partners be individual partners. In the latter case, the full self-employed income earned income will be the basis for employee deferrals and employer contributions.

Yes, These are taxable fringe benefits. See Form 1120S, Line 7 instructions. They are included as Officer compensation and their W-2 Box 1 wages, but not Boxes 3&5. See Form 1040 Instructions for the Self-employed health insurance deduction. All Medicare premiums are deductible as long as the individual is not eligible for employer subsidized group health insurance coverage of themselves, their spouse, dependent's or child < age 27. While Medicare supplement plans are not explicitly stated, I would assume those are also deductible.

401(k)(3) Application of participation and discrimination standards, (A) 1st paragraph starts of with; "If 2 or more plans which include cash or deferred arrangements are considered as 1 plan for purposes of section 401(a)(4) or 410(b)" Might that be referring to multiple businesses in a controlled or affiliated service group and not a single business.

An employer can have a 401a, 403b and 457b plan, a DB plan and a 401k plan or separate 401k plans for employees covered under a collective bargaining agreement and all other employees, but I have had the understanding that there can not be more that one 401k plan covering the same employees. This was based on the premise that it is impossible for an administrator to serve two masters. I.e. which plan's participation requirements, plan features, etc... would apply. Is this correct or am I wrong. Is there any IRC, CFR or other IRS guidance confirming this either way. Or is there some level of inference that drives this.

I agree with Larry that this is not ok, but the degree of "wrongness", ability of corrective measures and consequences depends on exactly what the CPA is doing. From your description that is not entirely clear. The only proper procedure is for the : S-Corp to pay or reimburse the health insurance premiums. S-Corp to include the health insurance premiums on Form 1120S, Line 7 Officer compensation. S-Corp to include the health insurance premiums in the 2% shareholder-employees W-2 Box 1 wages, but not Box 3 SS wages and Box 5 Medicare wages. 2% shareholder-employee to claim the self-employed health insurance deduction. Provided they are not eligible to be covered under their, their spouse or their dependent's employer subsidized health insurance plan. It kind of sounds like the CPA might not be involving the S-Corp at all with the health insurance premium, but they are not so nearly smart as they think they are. In that case there is no problem with the S-Corps 1120S, Form W-2 reporting, or the 2% shareholder-employees failure to report compensation. However, there are two big problems. There is no 2% shareholder-employee compensation to be added to their W-2 Box 1 compensation to base employer retirement plan contributions on. Even worse, the self-employed health insurance deduction is only available for 2% shareholder-employees if the the premiums were paid or reimbursed by the S-Corp and included in their W-2 Box 1 wages. See IRS Notice 2008-1*, claiming the deduction in these circumstances would be tax evasion. *This notice provides rules under which a 2-percent shareholder-employee in an S corporation is entitled to the deduction under §162(l) of the Internal Revenue Code for accident and health insurance premiums that are paid or reimbursed by the S corporation and included in the 2-percent shareholder-employee’s gross income. If the health insurance premiums were paid or reimbursed by the S-Corp and CPA is claiming the 2% shareholder-employees health insurance premiums as S-Corp deductions on Form 1120S would be fraudulent. Pass-thru business owners can never be the beneficiary of pre-tax health benefits. Regardless the paid or reimbursed health insurance premiums must be still reported as taxable wages. I'm not sure if failure to include the health insurance premiums as Officer compensation would be fraudulent, but it would inflate the S-Corp's ordinary income used to calculate the QBI deduction. Failure to to include the compensation and report it on Form W-2 could also be a reporting error. I would think most plan documents would require plan compensation to be that compensation claimed by the business and reported on Form W-2 Box 1. Here again, failure to include the health insurance premiums in Officer compensation and included in W-2 Box 1 wages, precludes taking the Self-employed health insurance deduction on Form 1040. I don't know why TPAs so often have to do CPA's jobs for them even when it does not involve employer retirement plan issues.

Did he take an RMD from the 401k plan before the rollover? If not the amount of the RMD was an excess contribution and must be returned with earnings, because RMDs are not rollover eligible. In fact, the 401k plan should have distributed the RMD itself before allowing a rollover over of the balance. Retirement account RMDs are always based on the year-end balance at the end of the previous year. So the amount of the eligible rollover to the IRA is not subject to an IRA RMD in the year of the rollover. It will be included in that year's year-end balance for the next year's IRA RMD.

It does not matter if you were employed on 12/31 or not. A SEP IRA can not have a last-day-of-the-year employment requirement. As an eligible participant it does not matter when you separate employment. The employer must base your 2019 contribution on your 2019 compensation. You will even be entitled to a contribution for 2020 based on the amount of 2020 compensation.

Not that it is relevant, because clearly the following requirements were not met. You can make "employee" traditional IRA contributions to a SEP IRA account if the custodian allows them and you designate them as such. Once made, you can not "recharacterize" SEP IRA contributions as traditional IRA contributions.

Generally, It is very difficult for a spouse simply performing work tasks for the other spouse's business to meet the IRS Behavioral Control, Financial Control and Relationship of the Parties requirements to be considered an independent contractor. However, Larry is correct that the barber chair rental and the fact that the revenue goes directly to that individual makes this pretty clear that she is in fact an independent business. I'm convinced she can adopt her own SIMPLE IRA plan. However, there is an alternative. They could treat both businesses as a single qualified joint venture (QJV), see Schedule C instructions. They elect QJV treatment simply by each spouse filing a Schedule C/SE under the same business. Then they could use the same Simple IRA plan. With no employees other than owners and optionally spouses. A one-participant 401k gives more options for retirement plan investing. Larger potential employee deferrals (2019 = $19K vs. $13K) and much larger potential employer contributions (25% vs 3%). However, since it is after the SIMPLE IRA 11/2 notice enrollment deadline, I think it might have to wait until 2021.

This will not work. See IRS Publication 590-B, When Must You Withdraw Assets? (Required Minimum Distributions), Page 7 Outstanding rollovers. The IRA account balance is adjusted by outstanding rollovers that aren't in any account at the end of the preceding year.

If the S-Corp owner's taxable income is >= the W-2 wage limitation phase-in range (MFJ $321,400 - $421,400). Then the qualified business income is limited to 50% of the W-2 wages of all employees. This is far more restrictive of a single employee S-Corp than these circumstances with the owner/spouse and six (6) employees. This is a separate issue than the IRS' increasing focus on reasonable compensation of S-Corp 2% shareholder-employees. I would only expect increased scrutiny when not only does the 2% shareholder-employee save FICA taxes on paying unreasonably low compensation, but they increase their QBI and possible deduction.

There is no EPCRS-like system for traditional and Roth IRA excess contributions. They are subject to 26 code 408, 26 code 4973, reported on Form 5329 and covered in Publication 590-A. While the IRS has statutory authority to grant a waiver of the 50% excise tax penalty for failure to take RMDs and I have seen them do so for extended periods although not eighteen (18) years. The IRS has no such statutory authority to grant a waiver of the 6% excise tax penalty for excess contributions. I have never heard of them granting any such relief. One thing to keep in mind. Just like for Form 5330, there is no statute of limitations (SOL) for unfiled Form 5329s. This is best dealt with before 12/31 or another year's excise tax will be due.

Lou, I'm not so sure that is true. I know several couples maxing out at least one 401k and one Roth IRA. While it may not be common, it certainly is not unusual. It usally represents a 15% - 25% retirement savings rate. I maintained a 15% - 20% rate for most years. That is what allowed me to comfortably retire in my 50s.

First let me say I have no real knowledge of New Jersey laws, but they tend to have some peculiar laws and or court precedence There is universally a intestate (no will) "spouse's share" and under will a "spousal elective share" of the net estate. Usually, these only apply to probate assets, not IRAs, life insurance, etc...*, but this is NJ so who knows. *ERISA provides federal spousal protection. Intestate (no will): In most states, if there are children, there is a fixed amount that goes to the spouse, then 1/2 goes to the spouse and 1/2 to the children. This depends on the state and whether the children are only from one, the other or both parents. Testate (will): In most states, the spouse may claim an elective spousal share if the will does not meet the minimum legal requirement (1/3 in most states). In most states, there is also a provision that can deny a spouse an elective share if they have been living apart for a significant period time under circumstances that could have been used for divorce. The bottom line. Anyone can sue for any reason. Whether she has a case or not is up to the lawyers and the courts. Good Luck!

Thanks Larry, at least I'm not senile (yet). Are there any provisions of the tax code, IRS regulations or guidance that directly support this or is it one of those many things that is by multiple inference.

It seems to me that I remember seeing 401k plans where there were "employer" contributions by salary reduction. However, I can find no cite or reference for this. The employee signs a employment contract that specified that they would not receive a percentage of their compensation. It would instead be deposited into the 401k plan and not considered an employee deferral. Essentially, the employee is making the contribution, but it is not employee deferral and it is not a contribution from employer funds. Anyone care to comment if I am getting senile or if not, any cites or references to some substantial authority.

At low levels of self-employment earned income with a W-2 401k. It is best to make most if not all the employee deferrals to the W-2 401k plan. E.g. With $20K in self-employed earned income, $19K in employee deferrals and $1K in catch-up contributions, no employer contributions would be allowed. Additionally, with the new section 199A 20% QBI deduction, qualified business income is reduced by the amount pre-tax retirement plan contributions. In the above scenario there are no employer contributions and no QBI deduction. If the maximum employee deferral and catch-up contribution were made to the W-2 401k plan. $20K * 20% = $4K in employer contributions could be made and ($20K - $4K = $16K) * 20% = $3.2K in a QBI deduction. This assumes the individual is eligible for the QBI deduction based on SSTB status, tax filing status and taxable income.

401k catch-up contributions are not subject to either the statutory (2019 = $56K) or 100% of compensation annual addition limit. The catch-up contribution only applies after the employee deferral limit (2019 = $19K) is reached. What do you mean by net income, business profits or self-employed earned income (business profits - 1/2 SE tax). Assume the latter, the self-employed individual can make an employee deferral of $19K - $6K = $13K + $6K catch-up = $19K to a one-participant 401k. The maximum employer contribution is the lessor of 20% of self-employed earned income $29,725 * 20% = $5,945 or (self-employed earned income $29,725 - employee deferral* $13K = $16,725) / 2 = $8,363. The maximum employer contribution would be $5,945. *Employee deferral not including the catch-up contribution, because it is not included for purposes of the 100% of compensation annual addition limit.

As a 2% owner, you are no longer eligible to receive pre-tax health insurance, FSA, DCFSA, etc... benefits. The S-Corp can pay or reimburse health insurance premiums and/or pay or reimburse HSA contributions, but those are included in officer compensation and reported on your W-2 Box 1, but not Boxes 3&5. This effectively makes them after-tax, that may/can be deducted on your personal tax return. AFLAC may offer supplemental insurance policies through your employer, but they are not sponsored by your employer as part of any employer plan and are after-tax. You may continue to purchase these supplemental policies, but you generally should only carry cost-effective insurance for risks you can not self-insure. Supplemental insurance policies are some of the highest priced policies in terms of premium to pay out ratios for insignificant risks. Having a good emergency fund to self-insure these risks is far more cost effective.

You are making assumptions not in evidence. In general, depending on the census some plans make a top-paid group (20%) election such that HCE ACP is lower. As employee after-tax contributions with in-service rollovers have become more available in plans, some NHCEs are taking more advantage of them than would be expected, making the NHCE ACP higher. Yes, the plan may still fail ACP testing, but often resulting in a reasonable employee after-tax contribution percentage for HCEs. Also, plans can preemptively establish HCE employee after-tax contribution percentage limits that facilitate passing the ACP testing. So while ACP testing on employee after-tax contributions can be problematic. It is no slam dunk that they should be avoided in all plans. Specifically and most importantly, the OP provided no information that there are any NHCE employees. For all you know this could be a one-participant plan with no testing required.

The attained age (71) in the year the participant turned 70.5 (2018) will be used. Earnings are never considered with regards to late RMDs. An age 71 RMD based on the 12/31/2017 account balance should be taken as soon as possible. Then a Form 5329 should be filed requesting a waiver of the 50% penalty for reasonable cause.They should include an explanation of any "reasonable cause", such as I didn't know, I didn't remember or the dog ate my RMD form. Also, include proof that the 2018 RMD was taken. The waiver will almost certainly be granted by the IRS if the Form 5329 instructions for a waiver request are followed to the letter. The participant may or may not get a response from the IRS. An additional age 72 RMD with be required by 12/31/2019 based on the 12/31/2018 balance. Both RMDs will be taxable in 2019.

Late on Friday or not, the correct answer is always logical. The timing of the withdrawal and retirement during the year is irrelevant.