Chipwood 24

Seems like different practioners in our industry see these differently. When changes were made to EGTRRA making these available, the counsel we used at our firm indicated that you could have MORE THAN 1 Owner on these. Some others see it differently. How does everyone see that? The Term "Solo" is just really a marketing term or gimmick, from my perspective. For example, if Jack and Dave own 50% each of ABC, there are no other companies that are owned by them, no common-law employees who reach 1,000 hours, then they could have ONE Solo(k) and both participate in it, correct? To go a step further, if they're spouses work for the company and get a W-2, they could also contribute, correct? Also, if you have 4 separate owners at 25% each (and not CG or ASG issues), they could all set up ONE Solo(k) and each participate, correct?

A self employed person with no employees uses a payroll company to handle payroll. They have no employees and no other business. The Owner intended to set up a Solo(k), and the payroll company took $20,500 as a pre-tax deferral for 20,500. The Owner never drafted documents to get a Plan set up and the $20,500 is setting in a business savings account commingled with other monies. They have already filed their 2021 taxes. How would you handle? Would you draft a document and have the move the $20,500 (plus earnings) into an investment account? And if so, would you also calculate lost earnings due to the late deferral? Or just tell them not set up a Plan at all for '21 and start with a Plan for '22? Ugh, these Solo(k)'s can get so messy. Probably needs to be some more regulations around these so people don't continuously mess these up, IMO.

Thanks for chiming in. I should've added that the Husband had already maxed out the SIMPLE deferrals with a total of $13,500 going in. If they're treating both SIMPLE's the same (same employer contribution, same eligibility), I don't see it as that big of an issue; although, I agree, it should've just been one. Not that it probably really matters, but the Solo(k) has not been funded for 2022, and the deferrals for it in 2021 came in, in November and December 2021. Just seems like there should be an easy way to fix this, but it doesn't seem like it. For example, it would be nice, if they could just take those out as Excess Deferrals? Or the bank could change the account registration to a Traditional IRA (trying to think outside the box) IRS SIMPLE IRA Fix-It-Guide leads me to believe that this type of error can't be "self-corrected." See here: https://www.irs.gov/retirement-plans/simple-ira-plan-fix-it-guide-your-business-sponsors-another-qualified-plan. I copied and pasted the relevant info from that site below: How to fix the mistake: Corrective action: If you maintain other retirement plans, stop making new contributions to the SIMPLE IRA plan. You may be able to file a VCP submission requesting that contributions made for previous years in which you maintained more than one plan remain in the employees’ IRAs. Correction programs available: Self-Correction Program: This mistake cannot be corrected under SCP.

Husband and Wife own 50% each of Company A, B, and C, all of which are S-Corporations. Company A has 6 employees, Company B has 37 employees, and Company C has only the Husband & Wife. All of these are a no-brainer Control Group. Wife is just an Owner of each and is not on payroll and has a separate job. Company A & B has two separate SIMPLE IRA's, but they're operating them the same. Not really that big of an issue, since they're treating them the same. A bank trust company talked the husband and wife into setting up a Solo(k) for Company C. In 2021, the Husband put in a $10k deferral into that. In 2023, they'd like to set up a Safe Harbor 401(k) for Company A, B, and C. Is there an easy way to unwind this and get rid of the Solo(k). The "Mistake of Fact" won't work. Could they just remove the $10k plus earnings as an excess deferral?

Thanks everyone for the quick replies. Hope everyone has a happy holiday.

Thanks for your replies. So, if you have an LLC being treated as an S-Corp and there are 3 separate owners (with no spouses or common-law employees) then you have to file the 5500-SF, right? Would they be eligible for the $500 tax credit?

A business has 3 unrelated owners who each own 33 1/3% of the business. The business has no other employees. Can this business sponsor a single plan that is considered an owner only/solo plan which is exempt from nondiscrimination tests and 5500 filing? The business is structured as an LLC and taxed as an S-Corp.

Thanks Lou for reviewing & opining.

And to follow-up on that, it's my understanding if the existing 401(k) was NOT a Safe Harbor, you could switch it to the 3% NE prior to 12/1, or 4% NE after 12/1, and add the Cash Balance. Does that sound correct?

ABC Co is part of a PEO MEP and they are operating their plan as a 401(k) QACA with a 100% vesting on the first 1% of deferral and 50% on the next 5% of deferral. Prior to joining the MEP, they never had a plan. They have not had a great PEO MEP experience, and have found someone else to take over most HR duties, including payroll. They want to break away from the PEO MEP as soon as possible. They want to keep a 401(k) and simply move the assets over, but make slight changes (like adding loans, in-service, no auto enroll). They are unsure if they want to keep the same match formula or go to something different, but I think they’re leaning towards something different. We’ve reviewed the SPD, but still waiting on other documents. From the Q&A I've read in ERISAPedia, it sounds like it's very important to review the actual plan document for possible "gotcha" moments. They apparently have had issues with the Auto Deferrals and the Advisor has told us that they have removed the Auto Enroll feature at some point in 2020. We are not sure if they sent notice about that or changed the match feature, but we're assuming they did. WE don't know if this occurred in the They’d like to get this all done in 2020, but we’re running out of time. We know it would be cleaner to stay in the MEP through the end of the year, and start the new plan effective 1/1/21, but they don’t seem to want to go that route. I’ve found nothing in 2020-52 that addresses how the QACA is effected, if the Automatic Deferral feature is removed. Questions: 1. Since they removed the Auto Deferral feature, what challenges are now faced with the discrimination testing (ADP, ACP, Top Heavy)? Does it have to be done for 2020? IF so, do we use Current Year Testing? 2. If it’s determined that we have to do Current Year Testing and fail a test, how do we correct it? For example, if they fail ADP, do the refunds or QNEC have to be done/made in the PEO Plan? Or can it be done in the new Plan? 3. How important is it to review the fine print in the Plan Document to see what challenges are faced with removing itself from the MEP PEO?

CuseFan & outdooractuary, just wanted to thank you both for reviewing and chiming in to give your opinions/thoughts. I sincerely appreciate it.

Dr Doogie Howser (age 47) and Dr John Trapper (age 51) are eye doctors who both own 50% each of Lazy Eye, Inc (an S-Corp). They have 7 employees and don't own any other businesses. They currently in 2020 sponsor a 401(k) Safe Harbor with a Basic Match. In 2021, they will be selling their business (it's a stock sale) to another entity and the expected proceeds from the sale will be $5 Million. The doctors are expected to stay on as employees for the forseeable future. They want to add a Cash Balance (CB) for 2020 (before the stock sale), so that will be Year 1 of the CB. For 2021, they will amend the Safe Harbor 401(k) to the 3% Non-Elective and it will be year 2 of the CB. In 2021, they expect the Stock Sale to go through. They would like to take advantage of the transition rule under 410(b)(6)(C) for the 401(k) and to let the CB run through 2021 and 2022. At the end of 2022, they would like to terminate the CB. Of course, in the negotiations, the Buyer would most likely have to agree to all of this and it would most likely effect the $5 Million purchase price of the business. For example, lets say it's sold for $4.2 Million instead. By doing this, the doctors would be able to shelter some money away and not have to pay taxes right away on the sale of the business. What challenges or issues do you see with this strategy of adding the CB (assuming the Buyers are ok with this format)? In regards to the CB, do you think the IRS would disapprove of it being used in this fashion? This seems like a great strategy and way to take advantage of the transition rule. Am I missing something?