"Can a Self Employed Sole Owner with negative Net Income, still make a 401 (k) deferral and Catch-Up of $31,000 for 2025?"

"We have an CPA firm - an LLC taxed as a partnership with about 80 participants. I've been informed that they are selling an equity interest in the the company to a private equity firm. It's a practice referred to as an Alternate Practice Structure "APS". I've asked a lot of questions and a lot of the answers don't make sense to me. I've never dealt with this before, so I don't know what I don't know. I'm guessing they need an ERISA attorney, but I wanted to see if anyone here can shed some light for me so I at least know the right questions to ask.

As part of the APS a new legal entity will be formed to separate our attest and advisory functions. Our current named insured will be the "attest firm" owned by the current partner CPAs. and a newly formed entity will be the non attest entity. There will be a management agreement between these two entities that explains how the non attest entity will provide administrative services such as back-office staff, IT, insurance, employee benefits and office space for the attest firm. All individuals employed by the company today, CPAs and non CPAs will be employees of the attest entity.

"They confused me by later saying both the existing firm and the new "Attest" firm will be a subsidiary of a holding company. They have yet to tell me who owns the holding company and it doesn't make sense if they partners are still owners yet they are a subsidiary. On a follow up they told me:

Present day

• All employees are employed by current LLC.
• The 401k arrangement is tied to current LLC.
• New Advisory firm is an entity that currently exists today. New Advisory does not have any employees.
• Current LLC and New Advisory are subsidiaries of the same holding company.

At transaction close, Current LLC will move to an Alternative Practice Structure. The APS model is a well-established framework in the industry and enables external investment from private equity into CPA firms. It will look something like this:

• Current LLC and New Advisory will continue to exist with the same names and EINs.
• Current LLC will move out from under the holding company and become a standalone entity.
• Over time, the employees will migrate from current LLC to new Advisory. It could happen all at once, but we aren't sure.
• Current LLC will have some CPAs as employees, but those individuals will also be employed and paid by New Advisory.
• We do not expect a change to the census / participation as a result of this change.
• There will be a management agreement between Current LLC and New Advisory whereas new Advisory will be responsible for obtaining and managing the employee benefits for all employees.

As I mentioned yesterday, we would like the 401k plan to continue through the transaction with no disruption to the employees.

"Finally they are telling me that other TPAs simply make New Advisory and adopting employer with Current LLC as a controlled group and move on. I don't know if I'm making it more complicated than it is, but something doesn't seem right. Any insights on this would be helpful as I've obviously a novice to this."

"A medical professional worked for a hospital but had non-hospital income so she set herself up as a sole prop and started a solo plan for herself with the outside income used as a basis for contributions in the solo plan. She has since left the hospital and started her own small practice. She wants to have a 401k plan for the practice while keeping her solo going with the ongoing outside income. Even though the income for the solo is different source than that for the new practice, these would be related businesses, am I correct? She was doing after-tax in the solo. Assuming the few employees in the new practice would not, then her after-tax would now be zero?"

"Issue with ERISA Attorney Auditor and TPA: Eligibility is 1 year of service. Initial determination is date of hire to date of hire. Date of Entry 1/1 and 7/1; timing of entry is Coincident with or next following the date eligibility requirements are met. Employee is hired 7/1/2024 and completes 1,000 hours Is his DOE 7/1/2025 or 1/1/2026?"

"The company has very young owners (2 of 3 in their early 20's) with an older employee population. Assume this is a 401k plan with:

1. A discretionary PS contribution that uses an Integrated allocation formula and
2. A Safe Harbor Non-elective contribution of 3% (allowing owners to maximize deferrals and avoid ADP/ACP).

"The discretionary PS contribution has a last day of employment and 1,000 hours requirement. The SH Non-elective obviously does not impose those same requirements. As a result, testing reports reflect a failed minimum gateway (because some employees only receive the 3% non-elective which is not at least 1/3 of what the HCE's are receiving after PS). However, 401(a)(4) passes because we are using an integrated formula which meets the broadly available allocation rates exception. Am I correct in my understanding that, because we are not cross‑testing, the gateway requirement does not apply, and therefore the 'failed gateway' testing report can be disregarded? (We use DATAIR and I'm not accustomed to accepting a failed gateway so I wanted to be sure my interpretation is correct.)"