Luke Bailey

Toy Cannon, I would expand on Effen's answer to you to say that it is possible under complex rules to do it for less than all the employees, but you definitely cannot do it just for one highly compensated employee.

ufo9, if you or anyone in your household has suffered a reduction in income or lost work because of COVID-19, I strongly recommend that you follow Lou S.'s suggestion and Google "CARES distributions." See if you think you qualify and then ask your employer if one is available for you from the plan.

If the payout schedule for the existing plan for that $175k would be other than a lump sum qualifying as a short-term deferral for 409A, paying him the cash bonus instead of vesting in the plan and paying out according to its payout schedule could be treated as a substitute accelerated payment and violate 409A. Generally, no, unless the plan has some unusual provision saying that it will not exercise discretion in a discriminatory manner or the like. You're not going to avoid FICA. Assuming the FICA lands in a year in which the individual is already over the OASDI wage base, which he or she probably is by now for 2020, the earlier you have your FICA event the better, because subsequent earnings escape FICA. Make sure he or she has not stolen before you pay. Also, for the covenant not to compete to be practical, presumably the amount is paid out in installments over the noncompete period. See my first response above regarding 409A issue.

There is no rule that would mechanically/automatically make a wholly-owned for-profit subsidiary of a nonprofit an "eligible employer" for purposes of 457 and thereby put you under 457(f) instead of 404(a)(5). Only if the for-profit arrangement was a substitute for something the individual was owed by the nonprofit that had been subject to 457. If the two arrangements are truly independent, no. If the for-profit was that in name only and never made a profit or paid income tax, and amounted to an agent of the nonprofit, relying on its capital infusions to fund the individual's payments, the IRS could presumably try to disregard it and say the arrangement was really an obligation of the nonprofit. Substance over form. But you have not indicated that those are your facts.

I think Mojo's explanation is clear, but building on it let me try to simplify among the three approaches in his first paragraph: * If you want super simple and are not worried about the participant's ability to start paying as of 1/1/2021, go with his first alternative. * If you enjoy middle school math for the heck of it and want to drive the participant crazy, go with #2. * If you want to give the participant a break on repayment and still keep it pretty simple, go with #3.

But they would be, right? Just using SCP for the years eligible for that, and VCP for the older year. Rev. Proc. 2019-19 is year by year, I think. I don't recall anything in it saying that if you had the same significant failure in more than one year, and some were within the SCP period, and some not, you had to use VCP for all.

Pammie57, this basic fact pattern has been the subject of a couple of different posts recently. The consensus was that (a) there is no guidance on the issue, (b) most comments thought you should net, and (c) there was a minority view (held by me, among possibly others) that you did not need to net. It may to some extent be driven by the wording of your plan with respect to the definition of compensation and self-employment income, and how multiple adopting employers are treated.

You can do either, Santo Gold. The benefit of waiting is that the IRS may have a somewhat different take on what should be contributed and how it should be allocated, e.g. earnings calculation. The benefit of contributing right away is that you cut off the liability to contribute earnings for the period after the contribution date. I would probably wait. I think you can self-correct for the two years within the self-correction period.

Belgarath, never said I was certain. Your point is well taken regarding money purchase.

No. Answer different. They were told that if they deferred + lasted to the end of the year they would get a match. They deferred. Some will last to the end of year, I assume. OP says fixed match.

There is no statutory or regulatory rule requiring proration or providing an ordering rule. It is based on your plan document. Some plans allow choice. It varies. But it is, again, based on plan document, or a written procedure under the plan document.

You might get IRS agreement, but only in VCP. Cannot do with self-correction. Whether IRS would agree or not is based on facts and circumstances.

MWeddell, it's a close question, and you may be right, but I don't think that 1.411(d)-4, Q&A-1(d)(8) settles it. There may be something more closely on point and maybe someone else will bring it up. The reason I say that I don't think 1.411(d)-4, Q&A-1(d)(8) settles it is that you are reading it as if it said "after all such conditions have been satisfied." But it only says, "after such conditions have been satisfied," which could be read as saying that you cannot amend a plan retroactively to change any conditions for receiving an allocation after they have been satisfied. Here, the condition (deferring) is being changed (i.e., it does not result in a match) after it's been satisfied.

chibibenefits, the basis for this is Treas. reg. 301.7701-2(a), which says that its rules (the "check-the-box" regime) for determining an entity's classification is "for federal tax purposes," unless a specific section of the Code says otherwise. 1563 is a "federal tax purpose."

I'll vote for their having to provide the match through 6/30 for those who fulfill the last day requirement. Seems like they made an offer and can't back out of it retroactively.

Yes.

Sebastian23, of course your description of the facts is pretty slim. The existence of a buy-sell, right of first refusal, etc. could affect. Taking at face value what you have provided, and treating it as a hypothetical, since again many past facts have been omitted, and the future facts (e.g., how the deal is written) are unknown, it appears that the employee was awarded real stock and will now be vested in all of it, so if he or she eventually sells it, I would think the form of the transaction as the sale of a capital asset would be respected. I think the key problem in what you have described is the pre-determined price. Under the 83 regs, which do not provide a bright line test, the service provider has to have the risks and rewards of ownership in order for the stock to be treated as having been transferred. And of course, the employee will be taxable on the current FMV of the stock now, which value will be his/her basis. But again, I am just addressing a hypothetical subset of the issues, for illustrative purposes. I guess there is the potential for a 409A "substitute payment" issue, but although, again, you do not provide sufficient facts, it would appear the severance payment would qualify for the short-term deferral exception.

Why can't you view the individual as having two tax aspects for this purpose, employer and participant. Because he had zero 415 comp, the amount cannot be allocated to his account. So it stays in plan and gets carried over to next year.

ALS, my thought was that the plan would issue two corrected 1099-R's for 2019, as you explained in your last post, to show that a portion was taxable RMD and not eligible for rollover, and then the IRA would report its distribution as an excess that was subject to tax in 2019, per the plan 1099-R.

The test under 1.401(a)(4)-5(a) is facts and circumstances, which of course doesn't help much, and I don't think any of the examples under 1.401(a)(4)-5(a) are really on point. But in this case, the amendment will presumably be for future years as well, and does not take away anything from any NHCE, so absent some really bad fact/circumstances (like paying less in bonuses to NHCEs after the amendment), I would think you are OK if you are within Notice 2016-16.

Maybe the IRA 1099-R should use Code P?

BG5150, right. But my point, with which I think C.B. Zeller is tending to agree, is that if you use a W-2 safe harbor for 415, your plan does "say otherwise."

ombskind, you really need to provide more detailed facts, i.e., explain how one person can "co-own a private home for the 2 of them." You mean A will loan to B and then B will use the funds to purchase a home the title to which will show that A and B are co-owners (either co-tenants or joint tenants)? Will the loan be secured? Please spell it out step-by-step, document by document. Having said the above, regardless of the details it seems virtually certain that there will be a PT.

Bird, I think it is tangentially relevant to the policy issue. I was merely pointing out that because the Code fully respects the S corp employer/employee relationship for a sole owner-employee, it enables the situation where the owner of the business may be entitled to a qualified plan contribution even if the business loses money. Therefore, the fact that in this case the business may have been conducted, for 2019, by two tax vehicles, a sole proprietorship and an S corp, and on the whole they were less profitable to the owner than his or her W-2 would appear to indicate, seems a little less of an anomaly. But I agree that is certainly not a dispositive legal argument.

And as an individual he or she needs to file Form 5330 following the instructions to request relief from the 50% excise tax.