Tom

A sole proprietor has a small loss on Sch C. The plan has no required contribution source. He made a deposit of $7,000 during 2023. I'm thinking with no compensation coudl he still make a catch-up deferral? Seems he could since that is allowable over plan limits such as compensation? Thank you.

I had a client a few years ago with 300 employees where the employer gave 1/3 of them a 1.5% match. I discovered in an annual client meeting that they were providing the wrong compensation for a >1% owner which then put his plan comp over $150,000. He was a long-time employee who had a large balance. I had a dreadful summer contacting different industry people, an ERISA attorney, etc. It was not our fault, but you always have to ask - how can they pin this on us, did we not ask enough questions, etc. It was a $150,000 issue. The company fortunately is very successful where owners make a couple million and so they took it rather matter-of-factly and actually thanked me for keeping the plan clean. But I was concerned about not just that plan year but the 2 following that had already passed! Then we are talking $500,000 with earnings. Fortunately, fixing the one year by adding $150,000 to the non-key group moved the plan into non-top heavy status for the following two. Lucked out. It all turned out fine but I can tell you, it affected my summer and not in a good way. I REALLY wish the top-heavy rule would be repealed. It is the worst thing about retirement plans in my opinion. I'm going to consider the "innoculation" above for several clients. Fortunately, the vast majority of our plans are small, professional and safe harbor nonelective.

A prospect is wanting to set up a solo K plan for 2023. My first reaction was the deferral for 2023 is not allowed since it was not elected by 12/31/2023 nor contributed on time. But wasn't there a exception for first year plan adoption for sole proprietors. I'm thinking I saw that somewhere. I will research further but I know this group will know this right off the bat. Thanks Tom

That makes sense and the admin system is working. I knew there was a reason. Thanks.

We have a business with only one eligible employee other than the owner. . For 2022 this employees was fully covered by the 3% nonelective safe harbor and profit sharing. For 2023, the person worked about 50 hours and earned $1,000 and terminated before the end of 2023. So the employee will get the safe harbor. What about the rule - if terminated and less than 501 hours can be excluded from coverage testing? The question is profit sharing. The owner is getting high PS%. I know PS for this employee is miniscule. Still for my own knowledge, what is the rule here? I know if I put this into our admin system it will say fail 401(a)(4). So the term with <501 hours apparently does not apply to 401(a)(4). That's fine. I just wanted to nail down this rule. It could be more meaningful rule in a larger plan to exempt this one person from 401(b) but still be able to pass 401(a)(4) due to all the other employees receiving PS. Thanks

The reason I asked is, we filed one in January without the IRS letter number and date and it sailed through to the DOL and no validation warning in the 5500 system. I reviewed this with my staff in January but when came time to review, it blew right past me. I asked the 5500 software provider and they were surprised the filing went through with no error. They gave me the DOL help line number to call which I wil do. Regardless we will amend. Not taking any chances on a 5500 filing. Tom

I had a CPA ask this question (which is really his responsibility to find the answer) about a predecessor employer: Dentist A sells practice to dentist B. Dentist B decides to assume sponsorship even though I recommended that not be the case because the financial advisor did not want to complete new plan setup forms, deal with rollovers, etc. The question: can dentist B take the new plan credits since this is a new plan adoption for his business EIN? Another situation like the above except the selling and purchasing dentist formed a partnership for one year. So the plan adoption went from Dentist A, to Dentists AB partnership, and then to dentists B for 2023. A CPA is asking about this one also. With the partnership in the middle, I told him the credit would not be available in my opinion even though the sponsorship for 2023 is under a new business EIN and this a "new" plan for that entity. But I told him I'd ask. I'd be surprised if the IRS would give any attention to this credit given the massive PPP and ERC funds given away. Thank you in advance. Tom

This is new for 2023 and it is covered in the 5500 instructions. In case I missed something, I thought I'd ask - it isn't optional right? Thanks Tom

Dentist A owns his practice 100%; Dentist B owns his practice 100%. They do no work for each other. Dentists A and B are purchasing practice C and will be 50/50 owners. Practice C hires a dentist who will be doing 75% of the work. Dentists A and B will work there to fill the other 25% of work. There is no referral of patients from A or B to practice C, or minimal. Practice A has a 401(k) with PS. Practice B has no plan. So the question was posed to me - does practice A need to cover practice C in the A plan? I believe the answer is no. Thoughts? Thank you, Tom

We became aware of a non-client plan sponsor who needs a 5500 audit for 2022. This is not our TPA client. The plan is bundled with ADP. The plan sponsor contacted us for a plan audit. The plan was small for 2021 but went well over 120 as of 01/01/2022. The 5500 for 202 has not been filed. ADP prepared the 5500 and I'm guessing takes the position - we posted it on our website and sent an email to the plan sponsor. I've seen that before with another bundled provider. And I realize plan sponsors need to be alert to deadlines as they are ultimately responsible. My question is (and I've seen this before at webinars and didn't pay close attention because I didn't think it would ever apply to us) - should the 5500 be filed now without the audit report? I'm told the audit will not be completed for a month. I'd like to get the DFVC penalty paid before the IRS catches the late filing. I'm surprised it hasn't already. What do you think about filing the 5500 now without the audit report and amending a month later with the report? Thank you, Tom

So 2024 has already begun and a plan has a pay-period safe harbor match. A client advisor is asking if they can amend the plan to an annual match to eliminate the requirement to pay the match quarterly. (This is not our client and apparently the plan sponsor has been paying the full match after the end of the year.) I told the advisor, I believe this is a prohibited amendment at this point for 2024 and that they need to begin paying no later than the end of the following qtr. I expect everyone will say it's a prohibited amendment for 2024 now even though an annual/true up match could effectively increase the match for some. Tom

Our software for minimum gateway purposes uses 414(s) comp for the 1/3 test and 415(c)(3) comp for the 5% test. Example: employee became eligible 7/1/2023 -total wages for the year $50,000 of which $25,000 was earned after the plan entry date. The person terminated so top heavy does not apply. The plan defines compensation as W-2 wages. But the person has to get the minimum gateway as the plan is cross-tested. The Question: Is $25,000 compensation used for both the 1/3 test and the 5% test or must $50,000 be used for the 5% test. The software seems to indicate $25,000 is used for the 1/3 test and $50,000 is used for the 5% test. This could be an input error. I didn't check the system comp fields, only the output report. Thank you for any help in clarifying this!

I assume this is required on 5500s - not optional?

Just to be 100% on this so 5500s are not rejected. I know our plan letter serial number. I assume the date of the letter is as below 6/30/2020, NOT the date of submission which was in 2018. Thanks

Does anyone file IRS form 945 electronically? If so, what do you use. We are filing paper again for 2023 since the deadline is approaching. We e-file our 1099-Rs. Thank you

I see that now CB. Thank you. That looks clear to me and makes sense.

The 1099-R instructions aren't clear to me for my situation below. for this don't seem clear to me. Maybe it's simpler than I think it should be. We have a client with some employees rolling small DB distributions a Roth IRA. Code H does not apply since the instructions say that is for Roth source to Roth IRA. I'm wondering if that is just a G code with boxes 1 and 2 completed with the rollover amount. am I missing something? Thank you in advance! Tom

The problem I'm having is things I'm reading say a key employee - is a >5% owner, >1% owner or officer with high comp "at any time during the plan year CONTAINING THE DETERMINATION DATE." The person I mention above was none of those things at any time during the plan year (2022) which contains the determination date (12/31/2022) for the 2023 plan year. So the person is not key for 2022 and first meets the requirements for key in 2023 but was not key as of 12/31/2022 which is the determination date for 2023. This is what's making me think the person is not key for 2023 even though he is an officer in 2023 and makes $250,000.

I'm checking the admin software on this which says the person is not key for 2023. 99% of our plans are small with owners/officers being the same and always >5%. But now the top-heavy issue comes into question for a client with a non-owner officer. Question: For PYE 12/31/2023 the top-heavy determination date is 12/31/2022 and the plan is top heavy as of that date. The employee in question is not an owner or officer in 2022 but became an officer 1/1/2023 (no ownership) and has $250,000 in comp for 2023. I believe this person is non-key for 2023 and needs a top heavy contribution for 2023. This is what our software indicates. Likewise if someone buys into a company in 2023 at over 5% (is not an officer) they would not be key for the year of their buy-in since the determination date of their status is the last day of the prior year. They would be non-key for 2023 and key for 2024. (They would be HCE for 2023 however.) Comments? Thank you!

Sorry one last question on this. I want to be sure since I'm sort of tricking the system. So I will test the >12 month group on an accrual/cross-tested bass and provide gateway to NHCEs in that group and enough PS to pass nondiscrimination testing. I will test the <12 month excludable group on an allocation basis which passes easily since they are all just getting the 3% safe harbor, no profit sharing. There is 1 HCE (an owner son ) in this group. My last question - must the the NHCEs in the <12 month excludable group meet minimum gateway? If so they would need to get 2% profit sharing. Thank you!

Wow - that is quite a good solution. I can do that. Perhaps Relius can do that without merging reports but in the testing screen you choose statutory exclusion and then test either allocation basis or accrual basis. Any Relius users know anything different?

John - last question. So I can pass the >12 month group testing on a benefits basis. I can give the <12 months people the 5% gateway. This <12 month group would pass on an allocation basis (there is one HCE in this group) but I can't test this group on an allocation basis and the >12 month group on an accrual basis right? I see no way to do this in the admin system.

Ok that makes sense as the program was telling me that. I'm actually testing it now on al allocation basis which is working fairly well. Thank you

Ah I was going to ask that! The under 1-year group participants are all getting the 3% non-elective safe harbor, nothing more. So it would pass testing on an allocation basis. I was not aware the plan could test both groups differently. (Does anyone know how to get Relius reports to show that?) I did get cross-testing to work by including the excludable group with some profit sharing. But since the plan says they are not eligible for profit sharing, if they go this route, does the plan have to be amended retroactively for 2023 to expand PS eligibility or can allocating profit sharing simply be done to satisfy testing? Thank you!

Plan provides for immediate entry for deferrals and Safe harbor non-elective. Profit Sharing requires 12 months of service. Plan is not top heavy. In 2023 an owner's son got hired and deferred and is getting the safe harbor along with 6 other NHCEs. They all are getting the 3% safe harbor. I am testing the plan using cross testing. This passes non-discrim testing for the >12-month group but fails for the <12-month group. I'll have to allocate profit sharing to the <12-month group to pass testing. Or does it need to be allocated as QNEC? In hindsight, the plan should have excluded HCEs from the safe harbor non-elective. But that is obviously too late. Thank you in advance for any comments. Tom