thepensionmaven Posted August 19, 2015 Posted August 19, 2015 What determines whether a self employed is still in business if the employees have terminated? Is filing a Schedule C with no income or expenses? That is, when does the plan have to be terminated or can the plan remain "frozen" and if so, for how long??
austin3515 Posted August 20, 2015 Posted August 20, 2015 When the person is no longer engaged in a trade or business? And why would you file a Scheudle C with no income/expense? I'm not sure the plan necessarily needs to be terminated if there is no business anymore. That I think is an interesting question. I'd be curious to see what everyone else says... I have never heard of a "mandatory termination." ETA Consulting LLC 1 Austin Powers, CPA, QPA, ERPA
ESOP Guy Posted August 20, 2015 Posted August 20, 2015 I don't know if it is so much of a mandatory termination as it is there a plan sponsor any more? It isn't clear to me there would be a plan sponsor if the person is no longer in a trade or business. ETA Consulting LLC 1
ETA Consulting LLC Posted August 20, 2015 Posted August 20, 2015 I agree. As long as you continue to meet the restatements and reporting requirements, there wouldn't appear to be anything pressing to require a termination. Many self employed individuals keep their plans open because they are invested in old fixed annuities paying at higher rates. Plan termination would require them to find other investments. So, it's beneficial to them to keep the plan open in order to retain their current investments. I've researched it before an have never seen anything that would mandate a plan termination. Good Luck! CPC, QPA, QKA, TGPC, ERPA
Mike Preston Posted August 20, 2015 Posted August 20, 2015 I believe the IRS position is that if a sole proprietor ever exists it continues to exist until the individual dies.
K2retire Posted August 20, 2015 Posted August 20, 2015 I kept my plan open for a number of years with no Schedule C income. Later I had a few random years with some additional Schedule C income before ultimately terminating it.
mbozek Posted August 20, 2015 Posted August 20, 2015 Its not unusual to see keough (HR10) plans maintained after the death of the owner by the surviving spouse. I recommend closing it because of the admin issues and cost of maintaining qualified status. Some plans are closed down by the executors. mjb
thepensionmaven Posted August 20, 2015 Author Posted August 20, 2015 Would your answers change if I mentioned the sole proprietor physician is now a full time employee of a medical practice?
imchipbrown Posted August 31, 2015 Posted August 31, 2015 I seem to recall that a profit-sharing plan needed substantial and recurring contributions. Some plans were restated to 0% money purchase plans to get past this requirement. I don't have the resources to quote chapter and verse.
austin3515 Posted September 1, 2015 Posted September 1, 2015 Lack of recurring contributions creates a partial plan termination, but not a disqualified plan. Austin Powers, CPA, QPA, ERPA
mbozek Posted September 1, 2015 Posted September 1, 2015 I do not know of any Q plan that was DQed because of a lack of recurring contributions. IRS doesn't have the resources to review plans to determine whether recurring contributions are being made. There are many old keogh plans that exist solely to pay benefits to the owner or spouse. mjb
ESOP Guy Posted September 1, 2015 Posted September 1, 2015 I do not know of any Q plan that was DQed because of a lack of recurring contributions. IRS doesn't have the resources to review plans to determine whether recurring contributions are being made. There are many old keogh plans that exist solely to pay benefits to the owner or spouse. They have enough resources to monitor this. Several lawyers I know are saying they are seeing more letters to plans that don't make any contributions for several years in a row to justify why they shouldn't have to vest their people. This is a simple data draw from the 5500s. You don't report a contribution and say you have people who are terminating with a balance and are <100% vested. It is all automated on EFAST2 now. Simple data checks like this will be more common. To be clear I agree this isn't a qualification issue.
Mike Preston Posted September 1, 2015 Posted September 1, 2015 The qualification issue is the failure to vest. I understand that the IRS takes the position that full vesting must take place as of the date that the "decision" was made to stop contributing. And that date is "deemed" to be the date that the last contribution was made. So, it becomes a qualification issue, with retroactive application (which, I might add, can be entirely illogical to apply in practice), if the IRS discovers it on audit.
K2retire Posted September 2, 2015 Posted September 2, 2015 So, it becomes a qualification issue, with retroactive application (which, I might add, can be entirely illogical to apply in practice), if the IRS discovers it on audit. Surely you didn't expect the IRS to apply logic!
mbozek Posted September 2, 2015 Posted September 2, 2015 So if a SE retiree plan gets a form letter from the IRS all that needs to be done is to respond that all participants are 100% vested and problem goes away. solo 401k plans are exempt from 5500 filing if assets never reach 250k. mjb
thepensionmaven Posted October 10, 2017 Author Posted October 10, 2017 WE have just now been informed the a "final return" had been filed for the business' I would assume, therefore that since there is no employer as of that date, there should also be no plan.
Mike Preston Posted October 10, 2017 Posted October 10, 2017 Is this the same sole prop that I have already opined that the IRS thinks continues to exist until death?
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