Larry Starr

Interesting... not something I didn't consider but then decided not to include it in my response. Given the nature of the question, I surmised it might be more complicated than these parties would want to handle. It will be a bit tricky, and I think we still are not really in agreement about the deductibility, so I figured no sense bringing it up. Then you go and screw around with my whole thought process.... ?

But it ISN'T an accrued bonus; the original posting said this: "The company wants to now give her a severance package of $30,000 and wants her to be able to defer from it." And if a deferral would to occur from a legitimately accrued bonus, then the deferral applies ONLY to the actual year of deferral. While you relate back an accrued bonus (if you follow the specific rules), you cannot relate back to the prior year a deferral.

Well, then he's clearly incompetent and the client needs to find a new CPA. Meanwhile, here's some "stuff" to throw at him from the Erisa Outline Book: SELF-EMPLOYED INDIVIDUAL An individual who has earned income (see the earned income definition in Chapter 1A) from the employer who maintains the plan. See IRC §401(c)(1)(B). A qualified plan may cover the self-employed individual, as if that individual were an employee. IRC §401(c)(1)(A). If the employer is a sole proprietorship, the sole proprietor is the only self-employed individual with respect to that employer. If the employer is a partnership, the partners who derive earned income from the partnership are the self-employed individuals with respect to that employer. Note that not all partners will necessarily have earned income. Earned income, as defined in IRC §401(c)(2), is based on net earnings from self-employment, so the partner has to be provided personal services to the partnership. For example, a limited partner might not be deriving any earned income from the partnership. A separate definition of earned income is provided in Chapter 1A. The term "self-employed individual" presumably applies to the owners of any entity that is taxed as a sole proprietorship or partnership for Federal tax purposes (e.g., owners of a limited liability company). and this... 3. Effect of 401k deferrals on the self-employed individual’s earned income. Since the employer takes a deduction under IRC §404 for elective deferrals made under a section 401(k) arrangement, and IRC §401(c)(2)(A)(v) requires earned income to be determined “with regard to the deductions allowed by” IRC §404, a self-employed individual’s earned income taken into account for allocation purposes normally reflects the reduction for the individual’s elective deferrals under a section 401(k) plan. However, a plan might “gross up” for elective deferrals in calculating compensation used to allocate employer contributions, particularly in light of the fact that “gross” compensation is the compensation used for purposes of calculating the IRC §415 limit (even for self-employed individuals) and many plans define compensation for allocation purposes as section 415 compensation. For example, if the profit sharing plan in the example in 1.a. above used section 415 compensation to perform the allocation, and the plan (or a separate plan maintained by the employer) included a 401(k) arrangement, Anna’s earned income would be increased by the amount of her elective deferrals under the 401(k) arrangement. However, any portion of the IRC §404 deduction that reflects other contributions made to the plan (e.g., employer matching contributions or nonelective contributions), or that reflects the elective deferrals of the other employees, would still be deducted in determining Anna’s earned income for allocation purposes, pursuant to the adjustment required by IRC §401(c)(2)(A)(v).

Since the only form on that list that we are concerned with is the 5500, we just make the change on the 5500 form and indicate it is a change. I see no reason to add the additional form 8822-B since I don't believe it adds anything in addition. If the client needs to send the 8822-B for other reasons, that's not our job (I would expect the accountant to do it, but then again, we don't even talk to the client about those issues).

Huh??? I don't understand what you are talking about doing. You are talking about a 2019 plan year (that's given). You are talking about a plan (is it just a profit sharing plan?) that has an integration level of the taxable wage base for 2019 ($132,900), right? No employee has a compensation in excess of the TWB (that's given). That means you have a plan that is NOT a cross tested formula for 2019, and any allocation of PS contribution would be allocated pro rata on compensation. What is your question now? You can't retroactively change to a plan that puts each employee into their own group; you have to follow the allocation provisions in effect as of 12/31/19. Do does handle what you are trying to do here?

And not sure I agree with you (actually, I am SURE I don't agree! ? ). Third party sick pay IS compensation paid ON BEHALF of the employer and in all aspects is treated as if paid by the employer. For retirement plan purposes, we include it in the compensation. As to 401(k), here is some commentary that I found that matches my own opinion: The most common definitions of compensation in plan documents are tied to amounts reported on Form W-2 or amounts used to determine income tax withholding. Although there can be some nuances that separate these two definitions, both include bonuses, commissions, and overtime. While important parts of an overall compensation strategy, all can wreak havoc on the operation of a 401(k) plan. In most instances, employee deferral elections should be applied to these amounts just like any other payroll. If included with regular paychecks, it doesn’t create much, if any, additional effort; however, if paid in a separate check outside of payroll, it can be easy to overlook them. In addition to withholding 401(k) deferrals, these forms of compensation must also be considered when calculating matching and profit sharing contributions, and performing compliance testing. There are some exceptions, but they must be spelled out in the plan document. In other words, the plan must be written in a manner that specifically excludes these compensation “extras” if that is your intent. Contestant beware! The exclusion of these types of irregular compensation requires special nondiscrimination testing each year. If you exclude a greater percentage of compensation from your lower paid employees than your higher paid employees, you may not be able to exclude that compensation after all, and you may have to make some additional corrective contributions to the plan. So, you need to work with the insurance company to handle 401(k) deferrals (I bet they have a procedure for that) or you have to modify your definition of compensation in the plan to say that no 401(k) deferrals will come out of third party disability payments (but then you will have to test your compensation definition).

Your talking about this language I believe: (i) General rule. A defined contribution plan satisfies the safe harbor in this paragraph (b)(2) for a plan year if the plan allocates all amounts taken into account under paragraph (c)(2)(ii) of this section for the plan year under an allocation formula that allocates to each employee the same percentage of plan year compensation, the same dollar amount, or the same dollar amount for each uniform unit of service (not to exceed one week) performed by the employee during the plan year. Though I have never (EVER) seen such an allocation, I believe the intent is that a uniform dollar amount PER WEEK OF SERVICE) is what this anticipates. So, if you figure out the total of all the weeks of all the participants, and divide the allocation by that number of weeks, you then allocate to each person the result of that calculation times the number of their own weeks. You have eliminated any connection to compensation. Now, since in your plan you are first dividing them up by groups before doing this, I don't think you qualify under this safe harbor because you are first doing the group thing, which automatically throws you out of the safe harbor rules. While you may be able to do this, you are going to be subject to all the non-discrimination testing rules; this will not ever be a safe harbor (IMHO).

We don't. It's not a requirement and in 35 plus years, it has never been an issue.

It is people who died after 12/31/19. Your bene can still get RMD stretch.

True, but our plans are almost all providing substantial additional benefits to the owners. The pure "safe harbor only" plan is rare when looking at small business. If all you are looking for is the deferral and match and nothing else, then this will work, but not until next year! As I said in my first response...."Just in case this applies". If it doesn't apply, it doesn't apply. But I've seen lots of people FORGET about the top heavy issue, so just don't forget! ?

It's a simple issue: is she EMPLOYED or not? If she is no longer an employee, then she cannot defer. If they have continued her employment (which it doesn't sound like is the case), then she can defer. They can call it whatever they want, but the issue is whether she is still an employee.

Sorry: no. The plans that count as previously existing are found in Section 4972(d)(1)(A). Specifically, sub paragraph (iv) which lists Simples.

Got to Vanguard and set up a rollover IRA account and roll the money into that account. Then, invest in whatever funds you decide you want. They will have pretty much the lowest cost. I have ALL of my IRAs in the S&P 500 fund (cost: $40 per $100k, so about $80 per year for your $200k - I call that FREE!) plus our entire company retirement plan is also in S&P 500, which in the long run will provide the greatest dollars for retirement. Nothing else beats it over time. But I am not your investment advisor and you are not paying for this advice, and since it sounds like you are not an investment professional (not that I have great faith in many of them since very few of them ever beat the market, after taking significant funds from you), you might want to find someone you have faith in, but I warn you, that is hard. Consider someone you pay a fee to rather than someone who gets commissions. Just some thoughts......

That just means that the account you are dealing with is an IRA (which is the funding vehicle for a SAR-SEP). So, you are following the IRA rules (you can ignore that it was a SAR-SEP). The answer to your questions: 1) Yes, he can now make IRA contributions because of the elimination of the maximum age limit. 2) They still have to take their RMDs, but the timing is not germaine; they take their distribution by 12/31 for any given year, but they have until 4/15 to make their IRA contribution for the prior year.

And....make sure you understand that a match won't count for top heavy rules, so if the plan is top heavy, they are STILL going to have to make the 3% contribution IN ADDITION. That is why we have TONS of 3% non-elective and (I think) exactly TWO plans that use the match. Just in case this applies....

And here's how to get your PTIN: Don't have a PTIN and need to obtain one? Most first-time PTIN applicants can obtain a PTIN online in about 15 minutes. There is no fee to obtain a PTIN. View this checklist to get started: https://www.irs.gov/tax-professionals/ptin-application-checklist-what-you-need-to-get-started

I don't believe there is a choice. If you prepare the 5330, that form does require the paid preparer designation. Yes, I have a PTIN, but I am an Enrolled Agent so I have one anyway. Since I take full 2848 (Power of Attorney) for my clients, the 2848 also has my PTIN on it, as well as my CAF number and my EA number.

This just shows the importance of having superb guidance when filling out beneficiary forms; it's too late to "fix it" when you're DEAD!

I agree that the plan SHOULD have language that resolves a conflict like this where there is NO direction as to per stirpes or per capita. Our plans do (see additional posting), but beneficiary designations are sometimes critical and a competent planner should be involved with the client to make sure they are getting what they want!

Agreed; and our default would be (if no clarification) "per capita". See additional posting and our instructions which I have attached.

I don't know how you can say that! If the contingent beneficiary designation contains the words per capita or per stirpes, then that is what must be followed by the plan administrator. If the participant doesn't want the proceeds to go per stirpes, then the default (if no indication of per stirpes or per capita), is per capita. Over 95% of our participants are happy with the standard defaults; in the few cases where they need something else, we rarely get to the contingents, but if we do, they hopefully are getting professional advice from their lawyer on how to fill it out (I don't give that advice; clearly the practice of state law which I do not do). I've attached the instructions we provide in the rare instances where someone want beneficiary forms; we explain that they are samples and if their attorney has their own forms, that is fine. If you look at the bottom of our form, we have the following language: NOTE: Unless you provide otherwise in completing the Beneficiary Designation, the trustee will pay all sums payable to more than one beneficiary equally to the living beneficiaries. If they DON'T want that, then they better make sure they fill out the form with the specific instructions otherwise. In the end, it is not our problem; whatever the form says is what will happen. BeneficiaryFormsInstructions.pdf

Not sure why you are making this statement. I said (in my earlier posting) that "Unless the plan provides for this benefit, it is not available." The truth of that has not changed. The birth or adoption exemption is NOT added under the hardship rules. 401(k)(2)(B)(i) is NOT the hardship distribution list. You will find that list under 401(k)(14)!

Interesting; my parenthetical in the last sentence of my response was intended to deal with the situation of an individual who was in BOTH A and B but B did not adopt. I have never seen language like you quote above; our plans don't do that. What kind of document are you using? If an employer hasn't adopted it, then the compensation from that employer does not count in every plan I've ever seen. I'm not sure the language you note is even allowable; without doing the research I can't be sure, but I know there will be an issue with the deductions at the employer level for compensation paid by an employer that has not adopted the plan.

Section 113 of the Act simply adds another exclusion from the 10% early distribution penalty found in Sec 72(t) of the code. The individual will still have to meet whatever requirements of the plan that apply, including the possibility of NO allowance for early distribution for this purpose. Unless the plan provides for this benefit, it is not available. It is NOT added under the hardship rules, which are under 401(K)(2)(B).

Your first question is too broad to comment here. Your second question has an easier answer. You are going to have to do complete non-discrimination testing, including all members of the controlled group who would be otherwise eligible but are not covered. Obviously, the issue is the HCEs. If there are no HCEs (not expected and not common) in the plan for Company A, then there is no need to testing. It is not the compensation that is "aggregated"; it is the participants who are aggregated (counted) in the testing. This assumes the normal situation of employees NOT working for multiple members of the controlled group (then you might also have a compensation testing issue since some compensation would be excluded, which itself could be discriminatory).