Basically

This new client came to me and needs to update their ERISA bond coverage. The plan had $800K in 2022... probably less now due to the investment performance. I've attached a copy of the screenshot he sent to me. What do people recommend? Just a stand alone bond or a bond + Fiduciary Liability? or maybe a bond + Fiduciary Liability + Cyber liability. As you can see each option that he was given includes all 3 options. Thanks Bond Coverage Options - Copy.pdf

I get the premise that the IRS is thinking about here if the businesses have some kind of relationship. Like a car dealer with employees who is a single member tire wholesaler and purchases all new tires from himself for his dealership. He's making $ for himself and maybe has a plan for the tire business and not the dealership. But a single member insurance agent who sells ice cream on the side? If that client came to me and I told him he would need to include his ice cream employees in the plan he would say "huh? my ice cream business has nothing to do with my insurance business. Forget it, too many employees, will become too expensive". That's my common sense thinking. Am I naïve? But the rule is the rule. Thanks

So definite control group for the insurance and financial advisor businesses. And, to take it further, control group even if one business sells insurance and the other ice cream sundaes. Thanks!

I have an independent insurance agent who sponsors a single member plan. He tells me that effective 1/1/23 he now has another new business, a financial advisory business. These 2 businesses reek control group to me since they can feed off of each other so I am inclined to say "control group". Yes? But to further my knowledge, does it matter if the businesses benefit from each other? If he added an ice cream parlor to the businesses that he owns would that make the insurance business and the Ice cream business a control group? Thanks

I 100% agree with you. I showed them the advantage of the cross tested plan with a SH NEC and it worked out well. But the requirement to give the SH NEC to all eligible employees, not just the ones deferring, didn't sit well. What about my thought in my original post. Give everyone the SH match. Then give them a company match with a formula of 100% of all deferrals above the safe harbor. No?

Client wants to match his employees deferrals dollar for dollar. He needs to entice people to work for him. In addition we need to build into this formula a SH match as well. Can this be done? Say 4% SH match + what... 100% company match over 4%? Is it that easy? (that just came to me)

I have been told it is similar to a car salesmen who is paid on a 1099. They get a draw and the draw is against commissions. The draw is I guess giving the salesman money in advance until the end of the month when whatever the salesman is owed is reduced by the draw. Easy enough to understand. I will clarify with the advisor his W2 comment. Thanks

My understanding is that each employee is given a draw each month. Then commissions and bonuses are paid to them on a 1099 basis. Ok, is that not allowed? Then (as I think this through) the commission is reduced each month buy the draw which reimburses the company. As for a plan design, can it work that the company excludes commissions and bonuses and only count W2 wages? THEN each employee could open up their own single member 401(k) (if they want) and make contributions based on their 1099 compensation as a sole proprietor? I guess these guys make real good $$.

I have read posts and tried to understand everyone's points. I thought I read somewhere recently that 1099 employees were going to have to be counted (or was it seasonal employees?). Anyway, I am working on a potential new client who has a business selling medical devices or pharmaceuticals. Each employee is paid commissions and bonuses on a 1099 but they also receive a draw which is paid on a W2. Add to this that the company is reimbursed the draw reported on the W2 from commissions and bonuses. Do these employees count? Do they count only on their W2 income or ALL of their income? Thankyou This is one post I was reading: Excluding 1099 Employees

Nope... most of the money was deposited in 2022. Looking at each employee starting with the NHCEs - EE1 deferred 4.62% EE2 deferred 8.5% EE3 deferred 5.1% Does it work like this : The SH Match is 6% so EE1 and EE3 would be matched - Done. EE2 would receive a 6% SH match + a 2.5% company match The 2 owners each deferred 40%. They could receive the 6% SH match + 19% company match which would mean that we would need to return $10,250. I'm sure I'm missing something. Would that work, fix the problem?

Here is the skinny - Plan is a 6% SH Match, company match, (and I always make the ER a pro rata discretionary NEC) Owner A - $67K Comp, $27K Def Owner B - $67K Comp, $27K Def EE1 - $39.5K Comp, $1,825 Def EE2 - $8,525 Comp, $725 Def (Term during year) EE3 - $39K Comp, $2,000 Def Owners are husband and wife. The plan only matches deferrals and they wanted to match everyone's deferrals 100%. Obviously the owner misunderstood the Safe Harbor design and how it worked. But is there a way to make it work?

OMG some clients just don't get it. This guy is generous. He wants to match everyone's deferral dollar for dollar. But I don't think it will work. He only earns $67,000. He deferred $27,000 so he wants a match for himself equal to that $27,000. That doesn't work... does it? I've got so many numbers bouncing around in my head. What is the max that he can get? Flat out 25% of 67,000 or $16,750? Total deposit for him would be $43,750? Is there any way to get him what he wants? Thansk

Thank you. I appreciate your responses.

Can someone point me to how ROTH payouts are taxed? I know the 5 year rule but here is where I am unclear: Situation: Susan has been making ROTH deferrals since 2015. She makes ROTH deferrals every year. The last 7 years she has amassed $100K+ (deferrals and earnings) Susan is over 59-1/2 and would like to take a distribution. Key Points: Susan opened the ROTH account over 5 years ago ... ✔️ Susan is older than 59-1/2... ✔️ So - Is the only rule that the ROTH begin date of the account be 5 years or older? Does it matter that some of her ROTH deferrals are less than 5 years old? Would Susan's distribution (which includes contributions and earnings) be tax free? As you know, a client comes to you telling you how it will be taxed. I just want to be sure. When she dies, with the Roth account non-zero, what is the taxation to her beneficiary? Thanks

Will do Mr. Rigby. Thanks And I did look up successor plan rules. This sponsor is older than 59-1/2. IDK what her thoughts are. I'll ask questions!

She already has been filing a form 5500, and that brought up another question I am always weary about - Regardless of whether a plan dips below the $250k mark because the assets just aren't worth as much or due to a distribution, is a 5500-EZ required to be filed? I'm of the mind to tell her to just terminate the plan and if in a couple of year she wants to open another one just do it. Is there any reason she can't do that? I mean, does the plan need to be gone for a certain number of years before she can open another one?

A single member plan (Solo) wants to roll out the balance of her plan into an IRA. She is not closing down her business, but she is ceasing her contributions to the plan. She would like to keep the plan around in case she decides to make a contribution at a future date. I know that a plan that does not receive a contribution for 3-5 years means that everyone is 100% vested. Not an issue here with this plan being a single member plan. But can she do this? Empty the plan out and keep it around with a small balance, $1,000 or so? Thanks

Bill, I was of the thinking it could but simply overthought it. Appreciate both of your responses!

Bob the doctor has a plan. He and his wife are divorcing. She gets a payout ordered by a QDRO. Can her payout be rolled into her own plan? (she sponsors a single member plan of her own). Thanks

That's how I've always done it. In the IRS' example for someone who does not have a vested balance that would allow them to take a $50K loan, the 2nd loan amount doesn't make sense to me. I would think you take the most that the participant can borrow and use that figure instead of the $50K figure. Honest, I'm not going to worry about it. It's just nice to throw an IRS link at the financial advisor backing up what you tell them. Thanks for responding.

My client has a plan balance much greater than $100K. So using the example above he would only be eligible for a second loan equal to $23,000. That would be what I tell him. But please explain your comment... In the IRS example Jim only has a $80k vested balance so he can take a $40K loan ... but you are saying for his second loan we don't use $40K we use the maximum $50K?

A client want's to take a second loan. I looked at the IRS' explanation and it is not how I have been calculating 2nd loans. In the end I have been more strict (it appears). Am I wrong? Here is the link to the IRS' example IRS Example / My comments in blue Jim’s vested account balance is $80,000. He borrowed $27,000 eight months ago and still owes $18,000 on that loan. Jim wants to take a 2nd loan. What can he borrow? Maximum second loan if amount still owed on first loan Jim’s current loan balance is $18,000. This amount plus the new loan cannot exceed the lesser of: $50,000 – ($27,000 - $18,000) = $41,000, or $80,000 x 1/2 = $40,000 Jim’s total permissible balance is $40,000, of which $18,000 is an existing loan balance. This leaves a new maximum permissible loan amount of $22,000 ($40,000 - $18,000). I always said that you take the vested balance to find the maximum loan amount for the 1st loan. If a 2nd loan is requested regardless of whether the 1st is paid off or not, this is how you calculate the maximum allowed: First, determine what the maximum loan amount can be right now Next, If the participant has an existing loan (or had a loan in the past 12 months), look to see what the highest balance of that loan was and subtract it from what the participant's could borrow now had s/he never had a loan THAT is what they can borrow. Using the IRS' example I would say that Jim could only borrow $13,000 ($40,000 maximum allowable less highest outstanding balance in the past 12 months or $27,000..... 40,000 - 27,000 = 13,000), not $22,000 It's a big difference. The IRS' example is more beneficial. Have I been wrong all these years?

I am not knowledgeable with regards to the investment question I was asked. The client wants to invest in some type fund which has a US investment side and an offshore investment side. The fund recommended offshore due to tax reasons... UBTI. No UBTI if it is foreign? Anyone follow me? I'll try and get more info. https://benefitslink.com/boards/index.php?/topic/28629-offshore-investments/&do=findComment&comment=114865

Here is the scenario, Single member plan. Owner took a loan, then COVID hit and business fell off (non-existent). The loan was suspended and ultimately the business failed. To close the plan the owner needs to understand how to calculate the defaulted loan balance. What is the process. Should interest be added? Just use the last principal balance? Thanks

I hate when I am asked this question. A participant wants to take a distribution. He is only 58 so he will be hit with a pre-mature dist penalty (1099-R code premature). But simple question... if the doc allows for in-service distributions is there any reason he can't?