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Found 15 results

  1. Say an individual's self-directed IRA owns a business, and the individual is curious which (if any) services he can provide to the business (ex. offer consulting services). Question is, does this run afoul of the prohibited transaction rules? I'm thinking yes, with respect to Code Sec. 4975(c)(1)(C) - because it would involve a disqualified person furnishing services to a plan asset (akin to the individual being prohibited from providing free labor/repairs to an investment property owned by the self directed IRS). Curious if others agree, or have other thoughts.
  2. I don't usually worry about $5 or $10 in earnings in forfeiture accounts, but recently I am seeing large plans with $3500 and $5000+ in annual earnings. The employer is using forfeitures and their earnings to offset discretionary contributions. It feels wrong - the earnings part, I mean. Wouldn't this be a prohibited transaction? I feel more confident that it would be a PT if it were Safe Harbor/QNEC/QMAC contributions they were using earnings to offset. Your thoughts and guidance will be appreciated!
  3. Some participants in ERISA plans have hired registered investment advisors (RIAs) to manage their retirement plan accounts -- selecting investments from the plan's menu, rebalancing the investments, considering in-plan and out-of-plan assets collectively, etc. The plan sponsor/fiduciaries do not endorse any RIAs to plan participants. Assume that the plan sponsor has permitted RIAs to access participants' accounts, and further, to deduct the RIA's asset management fees directly from the accounts. The Deseret Letter (DOL advisory opinion 2005-23A) does not directly address the fee deductions. The question is whether the plan fiduciaries will have co-fiduciary responsibility and liability for ensuring that the RIA's fees were reasonable, and if failure to monitor the fees is a breach of fiduciary duty. Is there any DOL, IRS, or other guidance on this topic? Thank you.
  4. X is sponsor of 401k plan (solo; H&W). X wants to invest both personal and plan money in a managed account with a major broker. The account requires a minimum investment of $500,000. X would like to form an LLC with 40% owned by 401k and 60% individually to own and make this investment. My understanding is that it would not be a prohibited transaction for a plan and a party-in-interest to form a new entity and have that new entity make investments, which would naturally split according to membership interests. I haven't been able to find any support or prohibition thus far. Opinions? Citations? Thank you.
  5. I have an owner of the company who withdrew $70,000 from a pooled profit sharing account in 2015, no 1099 was prepared and no taxes were withheld. The plan does not allow for inservice withdrawals. The owner is over 59 1/2 and he has enough in his account to take the distribution. Can this be self corrected since it is before the end of the 2nd plan year? What are his options? Insignificant? Significant? He would like to return $50,000 to the plan and pay the remaining amount in installments. He does not want the CPA to prepare a 1099 for 2015 and pay taxes, penalties. There is one other person in the plan and the Owner has maxed out on his loans.
  6. Plan Sponsor applied an incorrect match % to certain employees for a 3 year period (in addition to failing ADP/ACP). All employee defferrals were prcessed timely and properly. Correction for the incorrect matching % is being done via VCP. Would this also require a VFCP filing? My take would be yes, since a prohibited transaction occured as a result of the incorrect match (and not corrected with the year) and for the lost earnings. However, I do not see any applicable boxes on the VFCP model application. Any suggestions?
  7. Issue: A loan made to a “disqualified person” (owner/participant) that; 1) exceeds the maximum amount permitted under Code section 72(p), and 2) exceeds the maximum payment period under Code section 72(p). Because the loan was made to the owner (“disqualified person”) over the maximum amounts there is also a prohibited transaction. So, there are two issues. 1. Violation of 72(p) which results in a deemed distribution and can only be corrected under EPCRS/VCP where the maximum period for repayment of the loan has not expired. To permit the Plan Sponsor to report the loan as deemed distribution in the year of the correction instead of the year of the failure or to request relief of reporting the loan as a deemed distribution at all is only available upon request in the VCP application. 2. Fiduciary violation under ERISA where correction is permitted under the DOL’s VFC Program. In addition, the Applicant (Employer), can request relief of the excise tax under IRC section 4975(a). Upon receipt of a compliance letter from the EBSA, the EBSA will not impose the penalty under section 502(l) of ERISA on the amount repaid to the plan. I understand the correction method under EPCRS and the VCP application. My main questions are regarding the VFCP and coordination of these two correction programs. 1. Can you confirm that a Form 5330 would be required for each year of the loan failure. Example; loan originated 2014 and was corrected in 2016. Would there be a Form 5330 in 2014 for 15% excise tax and then an additional 100% since the PT was not corrected in taxable year and the same for 2015 and 2016? 2. When correcting loan failures in regards to the VFCP application are the correction methods set forth in EPCRS Section 6.07 appropriate? Are there any additional earnings calculations that are required? 3. Should the VCP application be done and a compliance statement be received from the IRS prior to submitting the application for VFCP? How does one coordinate these applications? 4. In order to request exemption for the excise tax under 4975(a), I understand that a notice to interested parties within 60 calendar days of the application must be provided; do I also prepare all Forms 5330s showing the amount for the exemption (but not submit them to the service w/payment)? 5. Is there anything that I am missing? For example; is there excise tax besides the one under 4975(a)? Thank you!
  8. A sole-proprietor write various checks from the profit sharing plan to various companies throughout the year for personal expenses. The sole-proprietor indicates it is an in-service distribution. Form 1099-R was filed and distribution was included in income on the Form 1040. Is this correct? Or would it be a prohibited transaction since the sole-proprietor is a disqualified person? Would this be considered an in-direct loan to the disqualified person? Thank you.
  9. A 401k participant, who happens to also be a fiduciary, requested an in-service distribution after he turned 59 1/2. The plan administrator allowed the distribution, which the participant then rolled over to an IRA. The terms of the plan only allow in-service distributions upon turning 62 years of age. Transaction occurred in 2014 and discovered in 2015. Amount was approximately $500,000, which represents about 25% of plan assets. The operational failure seems easy enough to correct, but is this not also a prohibited transaction? Any suggestions for addressing the prohibited transaction? Apply for individual exemption? Would a retroactive plan amendment allowing the distribution be feasible? If the distribution was allowed under the terms of the plan, a statutory exemption appears to apply.
  10. -investment manager/broker for bank screws up by executing a trade twice -gets the administrative people at the bank to fix the loss by carrying out transaction on his own personal IRA -is this a prohibited transaction? has he "dealt with the assets of a plan for his own account"? Also, where is the best place to find examples of prohibited transactions in self-directed IRAs? ERISA cases, DOL Advisory Opinions, Private Letter rulings? I'm having trouble finding official sources that give examples. Thanks in advance for any responses.
  11. Is the use of the DOL online calculator to determine the earnings to be paid when correcting late 401(k) deferrals, and the payment of the excise tax on that amount by filing Form 5330, sufficient to correct the error? Is anyone finding that the DOL is requiring a VFC application as well in order to rely on the use of the DOL online calculator?
  12. An IRA Owner would like to direct investment into a newly forming privately held US Business, whereby he would have an equity interest of less than 10% (probably less than 5%). It should be noted the IRA Owner would be a member of the advisory board as a recognized professional with immeasurable experience and knowledge as it relates the product the company is developing and will ultimately be marketing. Would this be a Prohibited Transaction? If the IRA Owner is not a member of the advisory board would the answer change? Would being a member of the advisory board raise self dealing issues? The business is developing and ultimately will market an implantable prosthetic. Would this trigger Unrelated Business Income issues? The company is expected to be quite successful and the IRA Owner would like the investment growth to occur in his tax deferred IRA rather than his personal asset portfolio for tax reasons. Could this person who has a non-Title I DBP make the same investment using the DBP assets? The issue of liquidity is understood. The need for annual valuation of the privately held investment for plan valuation purposes is also recognized. Thank you
  13. Physician client has investments in a surgery center, C-Class Shares. Client does use the surgery center to conduct surgery for his patients, as do other physicians. Is this a prohibited transaction issue? Does it matter that the retirement plan owns non-voting C-Class Shares?
  14. I'm a TPA with a one participant DB plan. The participant is the plan sponsor, trustee, and participant. He is asking me if he could take part of his plan assets and purchase a property he owns as an individual. On it's face it sounds like a prohibited transaction. Can this be done?
  15. I am doing some research and would appreciate some guidance. Summary Two IRA owners want their management company to be owned by their IRAs. This is a construction management company, and the construction loan requires a personal guarantee. This loan will eventually rollover into a nonrecourse loan. Generally, an IRA owner cannot guarantee his IRA’s debt. Question: Is there any exception or provision that would allow the investment, without resulting in a prohibited transaction.
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