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I am a solo-professional in a c-corp format with a staff of 11 with a target benefit plan.....
How can I convert next year to a Simple Plan, and what limits apply to me the highly paid 'employee' ????
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<<I am a solo-professional in a c-corp format with a staff of 11 with a target benefit plan.....
How can I convert next year to a Simple Plan, and what limits apply to me the highly paid 'employee' ????

This could be a complicated process. First you would have to wind down your target benefit plan, since you can't have a SIMPLE in conjunction with any other qualified plan. Then you would have to "fire up" your SIMPLE plan.

You'll need a qualified pension professional to help you with the part of the problem...and likely the second part of the problem also. Issues dealing with highly compensated employees are complicated. Since a SIMPLE plan is considered a qualified Cash or Deferred Arrangement (CODA), it will be subject to the rules regarding highly compensated employees.

So you really want to retain the services of a qualified pension consultant in order to review the plan types and see what your best options might be.

I can give you some of the rules regarding HCE's and SIMPLE plans, but they won't make much sense to you. They hardly make any sense to me. :-) Which is why I don't create or administer pension plans for clients in general, and certainly not clients with HCE issues. I use the services of a qualified pension consultant or actuary.

TMF Taxes
Roy
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Roy you wrote:

"Since a SIMPLE plan is considered a qualified Cash or Deferred Arrangement (CODA), it will be subject to the rules regarding highly compensated employees."

I have a pretty good working knowledge of SIMPLEs having set up several for clients, but I am light on theory and the lingo. What rules do simples have for highly compensated employees?

I am not aware of any rules for highly compensated employees for a simple like other pension plans have. I beleive a highly compensated employee can always have a salary reduction of $6,000 and if income is $200,000 the 3% match will make the total annual contribution to the SIMPLE IRA $12,000 for that employee. I hope this is accurate.

Thank you

EG

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<<"Since a SIMPLE plan is considered a qualified Cash or Deferred Arrangement (CODA), it will be subject to the rules regarding highly compensated employees."

I have a pretty good working knowledge of SIMPLEs having set up several for clients, but I am light on theory and the lingo. What rules do simples have for highly compensated employees?

I am not aware of any rules for highly compensated employees for a simple like other pension plans have. I beleive a highly compensated employee can always have a salary reduction of $6,000 and if income is $200,000 the 3% match will make the total annual contribution to the SIMPLE IRA $12,000 for that employee. I hope this is accurate.>>

Right you are, EG. Thanks for bringing this up. I got myself all turned around with my response, and completely screwed up the answer. I appreciate that you took the time to question it.

While SIMPLE plans will impact other CODAs (that may be impacted by the issues relative to HCEs), a SIMPLE plan is NOT technically considered a CODA. That being the case, SIMPLE plans are NOT subject to the rules regarding HCE's.

So, as you correctly point out, you don't have to worry about HCE issues relative to a SIMPLE plan.

Again, thanks to EG for his careful reading of my crummy response!!! :-)

One of the nice things about this folder is that there are enough pros and just plain tax-wise folks that hang around that a lousy answer won't go unchallenged for long. This is a perfect example.

TMF Taxes
Roy


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Roy,

Thanks for your response, I was definitely questioning myself about SIMPLE palns.

Have a great day,

EG
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