Basically

Thanks!

I'm glad you brought that up. An RMD is only required to withhold 10%? And, if the participant wants they can elect to not have anything withheld?

I was asked this question a week or so ago and have been putting it off hoping this person would go away. He hasn't. I have read that there are companies who promote real estate in plans. I see it as a big pain in the .... butt. Here is what he wants to do and also what I want to tell him - He wants to purchase an apartment building. He informs me that he is in escrow to purchase and intends to get a loan AND wants to use some of his pension money to complete the deal. Doesn't sound ok to me. Maybe a great investment, but IDK if he can legally do it. Am I correct in thinking this is a prohibited transaction at it's simplest? He will benefit personally outside the plan with the help from his pension. IDK, maybe there is a way to pull this off but I clearly don't know the way. He is concerned about prohibited transaction rules which impresses me, he is concerned and wants to do it the right way. He is asking me if I know anyone who could advise him how to complete the transaction. I was going to tell him to find an ERISA attorney in his area ( I am east coast he is west). Am I right... steer him towards an ERISA attorney and let him/her educate him on the legalities of this type of investment? and if it can be done how it needs to be structured. Thanks

I advised them they need to take the RMD. And I thought it through regarding the 1099-R. One for the rollover and one for the RMD. I appreciate the responses. Thank you both.

A participant is terminating/retiring. Because he is not an owner he did not have to take an RMD from the plan. Does he need to take one before he rolls his account balance into an IRA? The goal is to pay him out before the year end and we don't want to miss an RMD if he is required to take one.

I am being asked if this person's plan can have total assets of only their pension loan. Here is what I know. Woman intended to start a business (did actually) and opened a 401(k) plan. She rolled into the plan $200,000+ worth of IRA and pension money from her previous employer. She took a $50,000 loan and was making quarterly payments. COVID hit and her business went nowhere. She ended up rolling her IRA and previous employer plan money out and into an IRA (felt it was safer). She ended up stopping her loan payments as well so all that is in the plan is the loan balance. I told her that if she wanted to close the plan her loan would be a deemed distribution. She does not want that. Can it go along with only the loan as an asset?

Thankyou. Little things help

True, just no response from the client. Could an EZ be filed this year on paper after the SF was filed last year electronically?

A single member plan a year ago (2019) rolled into the plan a large sum and the sponsoring business intended to hire employees. COVID hit and no employees were hired. A form 5500-SF with the "one participant plan" box was checked and filed for 2019. Due to COVID the owner/single participant took a distribution and the assets of the plan are now only $51,000. No employees.... just the owner. Do we need to file for 2020?

I thought since they were not related in their business activities and didn't use the other's services they wouldn't be a control group. Would it be a control group of all 3 if one of the businesses was owned by a spouse? Or would it be a control group of just 2 of the businesses and the wife would be on her own? Thank you, I appreciate it.

A client has 3 small businesses... Lawn Service Professional power sweeping company Investment properties While they sound like they would all be using each other's services I am told they do not at all. Businesses #1 and #2 each have 1 employee + himself.... #3 is just him. Can he open a solo 401(k) plan for business #3 and not worry about the other 2? Or are we dealing with a control group? I recall reading another thread where the situation was similar but the other businesses were owned by a spouse therefore there wasn't a control group. He makes lots more money investing in real estate than the other 2 businesses combined. Thank you

No other employees, just father, daughter, SIL. Yes, I know it needs to pass non-discrimination tests. I appreciate the input. Thanks

Understood. Playing with the math... This following makes sense, right? If total compensation is 405,000 (290,000 + 91,000 + 24,000) and at the end of the year they only want to contribute $68,250 then after maxing out the father giving him his $38,500 the rest (29,750) would simply be allocated pro-rata to SIL and daughter. The resulting % each would get is a 25% employer contribution. And SIL's deferral would not play a part at all.

I am learning a lesson here.... So in total the plan can not receive employer contributions more than 25% of the total of all eligible compensation THEN... an individual employee can not receive more than their compensation, or the 415 limit, whichever is less In the example, SIL - if he defers 19,500, to max out he would need a 38,500 employer contribution... so that's the most he can get Daughter can not receive a contribution greater than her compensation or $24,000 or the 415 limit. Her comp is less so that is her max But how is that fair? Daughter ends up getting a 100% employer contribution and SIL gets a 42% employer contribution. In a situation like this you max participants out then what is remaining dribbles down to the next participant who still has room within the individual 415 limit? I see that in the end we couldn't eat it all up... $250 was left on the table. What if the SIL didn't defer at all? How would the $62,750 be allocated? Pro-Rata? This is very interesting

That's right... look back for HCE determination based on comp. Last year son-in-law earned $52K Daughter earns $24,000 and is a new hire 2021 Father earns $400K+ Straight pro-rata. Father want's to help them both out. Grooming them to take over. Father is 68

Son-in-law earns $90K. Needs to earn $130K or more to be a HCE, correct? For the owner to max out he would only need to receive a 13% employer contribution 58,000 415 limit (2021) (19,500) Deferral (I know, he can do the catchup also) 38,500 needed to max out or 13.275% of his comp (38,500/290,000) Can the business make an employer contribution greater than 13% on behalf of the son-in-law and daughter? 13% is all the owner can get... the employees could feasibly get a maximum 25% employer contribution and stay within the 415 limit... right? 25% of 91,000 = 22,750 if he maxes def to 19,500 he is at 42,250.

Point taken. Appreciate your help.

Ya that makes sense. Son-in-law lineage is kind of weak. Just to take it another step... if the daughter was an actual owner then son-in-law would be an HCE. It would be perceived that he would own her shares by attribution. Yes? Thanks

Sorry to re-visit this topic. We have a potential new client. - Older dad (68), owner of a supply company - Son-in-law works for the company - Daughter (wife of son-in-law) of the dad is also employed - ONLY these 3 employees They want a 401(k). Is this the same scenario? - Daughter is considered an owner by attribution from Dad Daughter technically doesn't own any company stock - Son-in-law is considered an owner by attribution from wife (who is daughter to dad the owner) ALL are in the eyes of the IRS owners and therefore HCES? No need for a SH contribution?

@Lou S., I think their fear is opening up the plan to a replacement bookkeeper should their daughter cease working and move away. I think I stated in the beginning, they are paying her out of their own pockets now and figured why not put her on the books and help her start a retirement savings account. It's never too early! @Bob the Swimmer, your suggestion is noted. My involvement in pensions is not much right now. I will look up ASPPA and CEBS in any event.

All of this information is excellent information. Very helpful and for this husband/wife company who want their daughter to participate, everything fits well. I appreciate the time taken to help me out.

Final question.. I think (and hope). Once someone becomes eligible to participate in a 401(k) to make deferrals, can that be taken away from them? If the child employee in my plan defers but due to college and her work load she drops her hours to below 500, does that mean she can't defer?

Yes it does and I am glad they are allowed. I appreciate your help and knowledge.

Thank you. I will research these types of assets. Are they allowed? Are they considered "non-qualifying" solely based on the fact that they are not held at a regulated financial institution. I guess they are not "secure" meaning that they can potentially disappear with the wind. A chance the participant takes if they decide to engage in this type of investment.

I will print them up and read them tonight. I'm glad you didn't include the 5500 instructions... those are 82 pages long. Although I should probably take a look at them also. 👍