Lou S.

I agree with the ERISA counsel suggestion. I think a VCP with the following "should" be acceptable but have not tried - 1 - Amend Plan to properly terminate and reallocate up to 415 limit if not already in document. 2 - Get proper distribution and election paperwork signed off on. 3 - Return assets (and earnings) in excess of 415 limit from IRA to Plan as excess IRA contribution. 4 - Deal with excess assets above 415 though some combination of fees (if allowable), reversion, and/or QPR.

Participant dies in 2026 before the 2026 RMD is processed. His stepsons are each 50% beneficiaries. Do they each need to be assigned 50% of the RMD or can all of the RMD be assigned one beneficiary. The reason I ask is one beneficiary wants a taxable cash withdrawal and the other wants to roll to Inherited IRA. If all of the RMD is assigned to the cash withdrawal then the remaining amount can all be rolled to the Inherited IRA. However, if all of the RMD is assigned to the cash distribution, that beneficiary would lose the ability to rollover those fund should they unexpected change their mind and decide to do a rollover within 60 days.

Over or under the 415 limit? If under it's easier as you can allocate the excess assets in the termination paperwork if the plan already doesn't do it. If over the 415 limit, you have a bigger problem with the assets rolled to the IRA and another operational error from the Plan. Pretty sure it can be corrected by the proper amendments and termination documentation as well as filling out the distribution paperwork after the fact. What I'm not sure about is if this can be self corrected or needs VCP.

Thank you. Yes, I told him the initial filing should have been under DFVCP and he said that sounds like one more reason to be angry at his prior 401(k) administrator.

Bumping this thread since it's pretty much on point. Prospective client just received IRS Notice CP283 for $14,000 - 56 days late from a plan they terminated. Form was actually filed late due to issues with record keeper of that plan. A reasonable cause letter was attached to that filing but does not appear to be acknowledged by the IRS. The reasonable cause letter may or may not be reasonable in IRS eyes. Prospective client has not received DOL late filing letter. Question. Can they now file amended return under DFVCP and send that in as the response to waive the $14K penalty? Or does the IRS letter negate that? 2nd question. This letter came by mail that client doesn't seem to check often. letter was dated in January with February response date, client claims he just saw it today but admits not knowing how long he has had it.

Don't allow participants to irrevocably waive their benefit in the plan in small plans, it's just asking for trouble in cases like this. Also did the person make an irrevocabale election to waive before they became eligible? If not, then I'm not sure their election is valid. Lastly would adding an in-service distribution for employer contributions at say age 30, age 40 or whatever age the participant is be away to fund the contribution and then if the participant "want's nothing to do with the plan" take an in service distribution of the employer contribution each year after it is deposited? Though I can't recall if that would work with safe harbor Non-elective as that might have the same age 59.5 withdrawal restrictions as elective deferrals.

You need to track the basis if you want to recover it tax free. Yes, that can be a pain. Your wife could convert all of her regular IRAs to ROTH-IRAs, but you would have to pay taxes on the conversion since you can't just convert the basis which would be simple but isn't easy to do in the tax code due to having prorate withdrawals between basis and earnings. ROTH conversion may or may not result is a large unexpected tax bill next year depending on the size of her IRAs. The form is per individual, so if you have no non-deductible IRA contributions to tract, you only need to hers. To answer your question, it would be singular you as the form is by individual even if married filing jointly.

Wouldn't that assume the owner took an allowable in-service withdrawal and a 1099-R would have been issued? Since the thread title is "impermissible withdrawal" I'm assuming that there was no paperwork or even distributable event for the withdrawal and this is a PT that should be corrected as such. I agree with Bri above.

You can't deduct more than 100% of the earned income for the sole proprietor so in your case the deduction would be limited to $18,800. You MIGHT be able to recharaterize the non-deductible 401(k) as ROTH since it doesn't exceed 415 limit though I'm not sure the mechanics of that or if there is authority in the code to do so.

A agree that acm_acm laid out a perfectly acceptable method for testing the plans. Test the premerger Plan on its own and the postmerger plan on its own including all participants after the merger. I think another reasonable method since it is a stock acquisition forming a controlled group during the year and not using the transition relief would be to test the plans together as a single aggregated plan for the year. In either even you will have 2 5500s.

As long as the fee is allowed by the plan, is reasonable, and disclosed in the participant fee disclosure notices I don't see a problem with it, though maybe I'm overlooking something. There are things you need to send participants beside payments at retirement or RMD age and if they don't notify you of address changes someone needs to pay to locate them, I don't see where charging the participant is problematic if it is part of the Plan's on going operations and uniformly applied.

I bit late because of the holidays. I'm not aware of any additional duty imposed in this situation. Lay out the correct option as you see it, quote the fees, if the client takes the advice great, if not resign and move on. Or as Ernie says, refer them to their counsel.

The advantage is it is done and they can open a trust account and fund right away. The disadvantage is as David D says, the client can no longer change their mind once they sign the document.

The correct way to do it is as David D suggests. Resolutions and amendments to terminate the plan and file a first and final $0 5500-EZ. How fmsinc describes it is likely what most people do. Just pretend like the plan never existed. No one ever elected to defer, the sponsor never funded plan. It's not the correct course of action but the odds of the IRS auditing a solo-k that never put any money into and presumable never took any tax deductions is probably quite small. But if you are a member of one of the alphabet soup organization you are problem subject to one or more code of ethics standards. The penalty for plan disqualification wouldn't be anything since there is no money so no disallowance of deduction or tax on trust income since there is none, but there is potential penalty of $250/day up to $150,000 should the IRS decide to press the issue. I'm not sure they would but they could.

I believe that is in the case where the required minimum contribution exceeds the sole-props Schedule C net income, and not all cases where the employer simply makes a contribution larger than the maximum deductible amount.