jsample

The business originally operated as an LLC, electing to be taxed as a sole proprietorship. In 2018, the LLC elected to be taxed as an S-Corporation. We kept the Form of Business unchanged on the adoption agreement; Limited Liability Company.

Thank you, yes there are eligible employees. Money was contributed from corporation, although the owner thought he was simply taking draws and putting into plan, as he did in prior years. He certainly was not trying to beat the system or take advantage of anything, owner just did not know the difference that occurred after becoming taxed as an s-corp. Accountant now wants to pay owner as a consultant, for 2018, generating self employment income to substantiate the contribution.

We have a client whose business was taxed as a sole proprietor until 12/31/2017. Effective 1/1/2018 he elected to become an S-Corp. The owner was under the impression that he could defer like he was still self-employed, and then max-out after the year end. He also assumed that his shareholder dividend could be used as compensation. His 2018 W-2 wages were $0. I’m not sure how he actually deferred throughout the year without compensation, I think he took what he considered draws and contributed them into the plan. Now we have a plan where an owner with $0 W-2 wages thinks that he deferred $9,000. How would this “deferral” be corrected? · Should it be returned to the owner as a 415 excess? This would generate a 1099. This was my original thought for correction, but how could someone get money returned when technically they didn’t have it to defer to begin with? · Should the money revert back into the company somehow, as an operational error (possibly failure to follow the terms of the plan, with no 1099 issued to the owner)? As a side question, I thought an owner had to take reasonable compensation in an S-Corporation.

I consider Kevin C a "guru" on these boards.

Thank you.

Would the answer remain the same if a 401(k) plan terminated rather than if the participant died? 401(k) plan terminated 11/1/2018. The first RMD for a participant was 4/1/2019. She requested a rollover of her entire balance into an IRA before 12/31/2018. My research in this scenario had me believe that the RMD had to come out prior to rollover into IRA, even though her first date, if the plan was still in existance, was 4/1/2019. .

Should every ERPA get a renewal letter? I do not recall ever getting one.

Not asked in the original question, but if there is a match involved, make sure that you double check that calculation if the match is made each pay period. I've seen a few incorrect match contributions once you test at year-end and limit compensation to $270K.

If it is a safe harbor match plan, then the employee's could simply elect not to defer. It seems like that is what they have agreed to through the employment contract, so it is probably not an issue with them. They do not defer and they do not receive a match, then there isn't an issue in the years they are NHCE's.

Does the DB allow people to opt out? That's another issue. I would assume that the actuary knows the DB plan provisions, but again, I'm assuming...

I believe that there is a difference between ineligible employees and excluded employees. Self correcting to retroactively let ineligible employees into the plan, who were allowed to participate prior to the plan's eligibility provisions, is easly handled through EPCRS, especially for NHCEs. However, I cannot find anything in ECPRS which addresses the correction of a plan allowing excluded employees participate.

Company maintains two plans - 401(k) for non-union employees and a DB for union employees. We provide tpa services for the 401(k), another firm provides actuarial services for the DB. We recently found out that 6 union employees declined participation in the DB plan (?) and the company offered them participation in the 401(k). These employees were listed on the annual census, but never identified as union employees. The 401(k) plan excludes Collectively Bargained from plan participation, always has. I do not believe that this situation can be corrected under EPCRS and in regards to the union employees who were allowed to participate in the 401(k) plan they will have to; return deferrals plus earnings, not eligible for rollover, no 10% penalty all returns are taxed in the year returned 1099-R will use a Code 8 rerun ADP / ACP testing without these employees forfeit match plus earnings Does anyone know of any solution where the excluded employees could remain in the plan? Thank you.

The plan document states the employer makes the match on a payroll basis. A Partner taking draws makes their deferral contribution one time at year-end. Is the Partner's match calculated on their full year's Schedule C compensation?