ldr

@jpod, yes, silly as it seems, here's what Sal says, Volume 11, page 64: "The requirement for the partner to make an election by the last day of the partnership year applies even if the final tax accounting for the partnership is not completed until a later date and the actual amount of the partner's earned income is not determinable until such later date. The deferral may be contributed after that date but the election to defer may not be made later than that date. The election may state the deferral as a dollar amount or as a percentage of the partner's earned income. It should also be acceptable to state that the deferral election as a formula (e.g. the greatest deferral amount that would be permitted under the ADP test)." I have administered plans in the past where the partners filled out an election form and simply put MAX in the blank where the dollar amount or the percentage would go. We just took it to be the statutory max as reduced by any considerations like failed ADP test, not enough income to support the contribution - in other words, the MAX possible under the circumstances....

@Tom Poje thanks for jumping in here. Do you agree that it's okay for the actual deposit of the deferrals for the partners and sole proprietors to occur deep into the summer following 12/31, as long as they have completed a salary deferral election form prior to 12/31? (That's assuming that it takes that long to determine their earnings, of course)

Thank you, jpod and justanotheradmin. I have worked in the past for one TPA firm where the owner was adamant that partners and sole proprietors absolutely must get their deferrals deposited prior to 12/31 (for a calendar year plan). I have also worked for TPA firms where the owners more or less threw up their hands and said "I give up. Let the partners and sole proprietors do whatever they please." And that wasn't being flippant - it was because they never seemed to know what their incomes actually were until the summer following 12/31. So those TPA owners took the position that partners and sole proprietors could make their deferrals as late as the filing date for their own tax returns including any extensions. Reading the latest out of Sal Tripodi's encyclopedia, he seems to be saying that as long as a deferral election is signed by 12/31, the actual funding can be as late as the determination of the income for the year.

Good morning to all, I have been asked to research the following: " Is it acceptable for salary deferrals to be funded well after the end of the plan year for self-employed individuals, i.e. sole proprietors. This is in the case of an ERISA plan, not a solo 401(k) plan. " Your thoughts, opinions, and explanations of your practices are appreciated, as always.

Hi ESOP Guy, thanks for the reply. Like you, I also report "D" codes and always did, just to prevent this situation. Last year, I did a total review of every 8955-SSA we ever did for our current clients. If a participant had ever been reported under the "A" code and no longer had an account balance in the plan, and did not appear to have been reported under a "D" code, I reported them last year as a "D". That way we could start 2019 with a clean slate and do it right going forward. We (and the other firms I worked for in the past) have always told clients to keep records for at least 7 years and that 10 years was probably safer. None of us ever thought about having to prove that someone was paid out 20,25,30 years ago. We will start telling them to keep proof of benefits being paid out basically forever.

Hi to All, My most thought provoking client called a few days ago asking whether we keep records back into the 1990s and of course, we don't. He had a phone call from a former employee who received one of those infamous letters from the Social Security Administration saying that he "might" be due a benefit from my client's retirement plan. My client did happen to have proof of some sort in his office showing that this man was indeed paid out in 1998 and no further benefits are due. However, my client wants to know what would have happened if he didn't have or couldn't find this information. We have his plan's activity in our computer software back to 2005, and we have paper copies of everything for the last 7 years, but nothing as far back as the 90s. Whenever this has come up before in the various places I have worked, the position has been taken that if the plan does not have a balance for a certain participant today, then he must have been paid out in the past. So far no participants that I dealt with have ever insisted that I "prove" that he or she was paid out. How are other firms handling these inquiries? Have any of you had a participant who wouldn't take "no" for an answer and insisted on proof that he or she had been paid out in the past? Thanks as always!

Well true, Mr. Bagwell, the employee who deferred after all does have his own 4% plus his employer's 4% for a total of 8% and is better off in the long run than the employee who "got something for nothing" and ends up with 3%... And meanwhile, Kevin C, yes, the underlying basic plan document does seem to say something to this effect.

This is a case where I was SO sure I knew the rules and it appears that I do not! A client has a Top Heavy 401(k) plan with deferrals, Safe Harbor enhanced 4% match, and integrated profit sharing. They use all of it - maxing out the doctor/owner via the profit sharing contribution and contributing whatever is required for the rank and file. The profit sharing has a last day and 1000 hour requirement. One participant worked less than 1000 hours every year except for 2014. That one and only year, she got her 1000 hours, met eligibility for the first time and got into the plan. For 2015, she did not defer and of course did not get a match, but she got the 3% TH minimum. In 2016 she began deferring 4% of pay and got the SH match but NO profit sharing. In 2017, same thing. I was working on 2018, noticed that once again, she deferred and got the SH match but no profit sharing at all. I thought we had made a mistake in 2016 and 2017 and were about to make a mistake in 2018 by not giving her the TH minimum 3% in addition to her SH match. I knew that if a plan had ONLY SH Match and no profit sharing at all, then the Top Heavy requirements were deemed to be satisfied. But I believed that from the moment you gave the HCEs 3% or more in profit sharing, you had to be sure that all of the NHCE participants got at least 3%, even those who didn't work 1000 hours. I questioned the software vendor as to why the under 1000 hours participant did not receive a 3% TH minimum for 2016-2018 and I was told that the employer doesn't have to give her a TH minimum 3% profit sharing contribution because she got 4% in SH Match and that takes care of it. So if there had been 4 under 1000 hours participants in the plan, and 2 deferred 4% of pay and 2 deferred nothing, the 2 who deferred and got the SH match get NO profit sharing, and the 2 who didn't defer anything would get the Top Heavy minimum 3%? That hardly seems fair or right, but what do I know...... I just want to run this up the flag pole and be sure that others agree. If this is really right, so be it - what do you say? Thanks as always.

Mike, I have now asked for the other Schedule C, the one they will use for the estate reporting, and for the Schedule SEs. I looked up the SE to see what it is all about, and now I am wondering if we have been using the wrong number for this client's income all along. My predecessor, left notes indicating that he had always used Line 31, Net Profit (or Loss) from Schedule C for this sole proprietor's income for plan purposes. It is looking to me like the Schedule C is just an element of her income that gets impacted by other things on other forms like the SE and the 1040. What number, from what form, is the actual compensation of a sole proprietor for plan purposes? Thank you in advance for any help you can give.

Lou that's a great idea. The administrator who initially brought me this issue is out this afternoon but Monday we will find out.

Thanks for the reply, Mike. I wouldn't have known to ask for that either.

Thanks, card. We saw that too, but as far as we know, she wants a lot more than $10,000. Otherwise that would have been a good avenue to pursue.

Thanks, RatherBeGolfing. We are in agreement.

@ Kristina, thanks for your input. As I understand it, merely being over 55 isn't enough. She has to be over 55 and meet some other criteria before she can use code 2: (from the IRS instructions) Use Code 2 only if the participant has not reached age 591/2 and you know the distribution is the following. • A Roth IRA conversion (an IRA converted to a Roth IRA). • A distribution made from a qualified retirement plan or IRA because of an IRS levy under section 6331. • A governmental section 457(b) plan distribution that is not subject to the additional 10% tax. But see Governmental section 457(b) plans, earlier, for information on distributions that may be subject to the 10% additional tax. • A distribution from a qualified retirement plan after separation from service in or after the year the participant has reached age 55. • A distribution from a governmental defined benefit plan to a public safety employee (as defined in section 72(t)(10)(B)) after separation from service, in or after the year the employee has reached age 50. • A distribution that is part of a series of substantially equal periodic payments as described in section 72(q), (t), (u), or (v). • A distribution that is a permissible withdrawal under an eligible automatic contribution arrangement (EACA). • Any other distribution subject to an exception under section 72(q), (t), (u), or (v) that is not required to be reported using Code 1, 3, or 4 See, this lady isn't terminated or separated from service from her current employer. She wants an in-service distribution from her unrelated rollover bucket that originated with a previous employer. I am saying she has no grounds for using Code 2, and my colleague was trying to "stretch" the rules to fit the situation by saying that because the participant IS separated from the employer who generated the rollover she put into her current employer's plan, and because she WAS over age 55 when she left that employer, then she should be able to use Code 2. Lou S and I are of the opinion that once she rolled the money into her current employer's plan, she lost the ability to use Code 2.

We did find out this much. The participant could roll the money to an IRA now, and then take the withdrawal as a first time home buyer from the IRA, penalty free. But given the logistics of getting the rollover done and then making the withdrawal, she would practically have reached age 59.5 anyway..... The other idea being kicked around is to see if some kind of letter of guarantee could be provided to the lender or the seller showing that as of x date in March, she can access the funds for the down payment....

Thanks, Lou S. Of course the safest and fastest thing to do is to tell the participant that she must wait until the magic day in March when she turns 59.5. That's easy. But the colleague who asked if the participant could somehow be construed to meet an exception deserved to have her idea explored, so that's what we are doing.

QDROphile, I was merely thanking Lou S for his answer and commenting that it matches what I thought. It goes without saying that I would wait for more answers and weigh them against each other, plus eventually trying to do more research if necessary, before making a final judgement. Don't jump so quickly to conclusions!

Thanks, Lou S. That's what I thought, too, but didn't really have anything to "hang my hat on".

Good afternoon to all, Our client's document says that unrelated rollover money can be withdrawn at any time, while for all other sources, the participant must be 59.5. A participant in the plan with 6 figure unrelated rollover balance wants to withdraw money immediately for the downpayment on a new home. She is literally a month away from turning 59.5. I say that she needs to wait until her date of attainment of 59.5 to avoid the 10% penalty on her withdrawal. However, a colleague is speculating that because the funds originated in the retirement plan of a previous employer, she no longer works for that employer, and she left that employer after turning age 55, she shouldn't have to pay the 10% penalty. I think that could be true if she had left the money in the old employer's plan, but once she rolled it into her current employer's plan, she's subject to the penalty if she doesn't wait until she is literally 59.5. I am never dead sure of anything, though, so I am asking........... What say all of you? Thank you as always for your input.

Good morning to all, Today we are working on the 401(k) plan of a sole proprietor who passed away in 2018. When the CPA sent the Schedule C, she made the comment that this is the Schedule C of the owner while she was alive, and that if I needed the Schedule C that is being filed with the estate, let her know and she will provide me with a copy. I wouldn't have even known that these are two different things, if the CPA hadn't brought it up, and while my first inclination tells me that the Schedule C while the owner was alive is the one I need, I don't know that for a fact. Does anyone else have any experience with this? Which of the two should I be using for 2018? Thanks in advance, as always.

Makes sense to me, Kristina. Seems to be unanimous - VAB it is.

Thank you, Andrew Z.

Hi Tom, Thanks, that was my line of thinking too. Why would you report money that someone would never get? I will let my co-workers know that we use VAB, not total account balances. And no, I don't report people on the SSA in the year of termination. I wait until a year has gone by and if the plan didn't manage to pay them out in that following year, then I report them. But I do see your point.

Good morning to all, Last year I did a massive review of all of our clients and got the 8955-SSA reporting ship shape, going back as far as we had records and being sure everyone was reported correctly. (These are all DC plans, mostly 401(k)s). On page 2, Part III, Item (g), I reported the vested account balances of those who had not yet been paid out. I am now reviewing a 2018 report for a colleague who has done an 8955-SSA and has reported the participant's total account balance instead of the vested account balance. The instructions for 2017 and 2018 are not specific, just saying ""For defined contribution plans, enter the value (in whole dollars) of the participant's account." It really doesn't address the fact that their total account balance and their vested account balance are (often) not the same thing. What are the rest of you doing? Thanks for your advice and tips as always.

Thanks, Larry and Tom. Tom, I am just finally becoming aware of what you are saying about the rollover. I have worked for firms where everyone thought we were 'off the hook" for calculating the RMD if the participant rolled all of his money out to an IRA in the year he turned 70.5. We used to think it then became the problem of the entity holding the IRA, not us. However, this year I learned otherwise. Thanks for the reminder, though!