CuseFan

I have seen, and had clients in the past, that filed an extension, filed their return after the original due date and before the extended due date, claimed a deduction for their retirement plan contribution, and then used their tax refund toward their contribution deposit which was made by the extended tax return due date.

Great points Ilene. As with many questions that come through here - just because something CAN be done doesn't mean it SHOULD be done. For those with religious objections, maybe the employer suggests they donate any future distributions to charity and name as beneficiary (with spousal consent of course).

I thought the SCHI issue had been discussed before and assuming plan definition supported and did not specifically exclude that consensus (maybe?) was you inlcuded.

Regarding reasonable classification for average benefits testing - the plan is not naming names for who is eligible or not, this employee is otherwise eligible but is electing to waive coverage.

Satisfy 410(b) using the average benefits test. You will likely need to give NHCE#1 more, and that increase may be more or less than what #2 would have received.

If considered self-employed (sole prop Sched C), yes.

If plan supports and person is not employed by a participating employer within control group, they are excluded. However, if US citizen they are not statutorily excluded and must be included in coverage testing. I assume their foreign paid income would be considered, but the only implication would be for HCE determination.

With apologies to any CPAs on the forum, some have no issues with taking transactional shortcuts if you end up in the same place. Maybe the new overworked and underpaid IRS will say "meh, ok, no harm no foul, these aren't the droids we're looking for, go about your business."

No can do - as @Bri states - company contribution/check, as that is where any deduction occurs and where an IRS auditor would be looking to substantiate. Beyond that, plan sponsor and his accountant can figure out the details to make that happen.

post separation the 100% FAE can be indexed/increased, see my response above (third post)

I don't think that's clear. If you want safety, maybe ignore the statutorily excludable and apply the 6% to the rest.

Yes, assuming the plan allows.

The compensation limit can be increased by some annual COLA percentage after a participant separates, I think most pre-approved plans allow for that. These are less than post-NRA increases but apply from separation. This might delay the required (retro) commencement date. From Google AI: For a participant who has separated from service, the IRC Section 415(b) 100% of compensation limit is adjusted annually for cost-of-living increases. IRS (.gov) +1 The specific percentage increase for recent and upcoming years is as follows: For 2026: The adjustment factor is 1.0284 (a 2.84% increase) for participants who separated before January 1, 2026. For 2025: The adjustment factor was 1.0258 (a 2.58% increase) for those who separated before January 1, 2025. For 2024: The adjustment factor was 1.0351 (a 3.51% increase) for those who separated before January 1, 2024. IRS (.gov) +4 Key Rules for Post-Separation Adjustments Annual Indexing: Under Section 415(d)(1)(B), the compensation limit (the "high-3" average) for a separated participant is adjusted annually using procedures similar to Social Security benefit adjustments. Cumulative Calculation: The adjustment is applied by multiplying the participant's compensation limit, as previously adjusted through the prior year, by the current year's factor. Plan Provision Requirement: A participant's benefit can only be increased to reflect these cost-of-living adjustments if the specific retirement plan document includes language allowing for such scheduled post-retirement increases. Comparison to Dollar Limit: The final benefit remains limited by the lesser of this adjusted 100% compensation limit or the overall 415(b) dollar limit (which is $290,000 for 2026 for those aged 62+). IRS (.gov) +6

Aggregate compensation of DC participants, so I would think so.

Also, it is the plan's fiduciary's decision to continue or forego attempts to recoup the overpayment on behalf of the plan. The RK can pursue or not in their administrative function and to mitigate their liability.

Those not eligible by age/service for PS and CB would not be included in your rate group testing. Good luck if you have to navigate a 6% DC limit to avoid combined plan deduction limit with a SHM.

I think yes, it would actually have to convert to PS as it would no longer satisfy requirements of an ESOP. However, if there was never a 401(k) provision and that component plan is new I believe it will be subject to auto enrollment rules.

The 415 100% of comp limit is prorated on service so it might be 100% at the start depending on past service. However, the dollar limit is prorated on participation so a 2025 accrual of an annual benefit of $28,000 is the maximum even if 12/31/2025 service is ten or more. I don't see how that formula would increase participation years and allow for an increase in future 415 limit and owner benefit. If it did and there were any other non-excludable employees there would be a 401(a)(26) problem and 410(b)/401(a)(4) issues if they were NHCEs.

Yes, and then the person can request however much of their excess from each of the plans as they choose. This is a tax compliance issue for the person, not a qualification compliance issue for either plan.

Any way this gets sliced, the person's net taxable income should deduct to zero.

Thirded!

It's a game accountants like to have their clients play to minimize their FICA and Medicare payroll taxes, which often screws them out of the ability to make maximum retirement contributions (not to mention limiting their ultimate Social Security benefit if below the SSWB). If W2 is already over the SSWB then it's only 2.9% Medicare taxes they are saving, which is not smart when the retirement contribution percentages missed out on are typically much higher. S-corp plan comp is W2, K1 is not included, that is not an item open to plan administrator interpretation and if they insist on doing so I would likely resign from that engagement.

No worries, no one is 100% here and we respectfully correct or disagree with each other when appropriate - that is what's great about this forum, it makes us all better.

The plan document should define the eligibility computation period and likely says first performed an hour of service. The 1/1 vs 1/3 start for a salaried individual is an interesting case. If they were paid for 1/1 then they were credited with hours of service for such date. One could argue that it is a reasonable interpretation to equate crediting with performing, but a strict interpretation of performed would be defensible. In such a case the PA should interpret and subsequently follow the precedent. In the case above, big gap from 7/1 to mid-August.

I think you are missing the point here - the question/issue is severance pay not post-severance compensation. The person is no longer employed and severance pay (per IRS) is never plan compensation.