All Activity

Thanks JAA :^) For some reason, I was under the impression that the catch-up limit was Plan-specific (aka a person could have infinite catch-up limits being in infinite Plans). It makes a lot more sense that it is an individual limit - thanks for pointing me to actually read the regs.

To help customers apply § 414(v)(7)’s constraint that a higher-wage participant’s age-based catch-up deferral must be Roth contributions, recordkeepers are asking an employer to deliver—in January, following W-2 files—a computer file that shows, yes-or-no or on-or-off, whether a participant had in the preceding year Social Security wages more than $150,000. Everything I’ve heard so far suggests this is the mainstream method recordkeepers are doing. Is there any big recordkeeper not doing this?

I think the ASG question needs to be answered first. If there is one - the combined limits are only pro-rated under SECURE 2.0 if the SIMPLE is terminated and a replacement 401(k) is immediately put in place, and all the requirements are met. Which doesn't sound like occurred. So trying to determine deferral limits for this scenario is outside the scope of the language in SECURE 2.0, and you need to look to EPCRS for what to do when there is both a SIMPLE IRA program and a 401(k) plan in the same year by the same employer. When there is a SECURE 2.0 compliant SIMPLE term + replacement 401(k) the pro-rated limits are just math, based on the days and portion of the year each one was in place. If you want some examples of how the math works, I think ERISApedia had a webinar that covered that last year, as did several other providers, if my memory serves. The combined prorated 402(g) limit is specific to that single employer, for those two (SIMPLE + 401k) combined. Not the participant. If the combined prorated limit is $22,000 and the employee maximized those, and also works someplace unrelated with a 401(k) plan, they can defer the difference up to the annual regular 401(k) limit. Their personal 402(g) limit is not the same as what the employer's has to apply. If there isn't an ASG - then company B is just starting a new 401(k) plan. And the short rules for pro-rating limits, whatever they are in that plan's legal document, will apply. The existence of a SIMPLE sponsored by an unrelated entity is immaterial to the analysis. Perhaps the question you are trying to ask is more "if a person participates in both a SIMPLE and 401(k) from two unrelated employers, how is their personal deferral limit impacted?" not as detailed as you might need, but here is a starting point for additional reading https://www.irs.gov/retirement-plans/how-much-salary-can-you-defer-if-youre-eligible-for-more-than-one-retirement-plan

Thank JAA. Agreed on the ASG item - hopefully the Plan Sponsor is answering correctly. I understand that generally the 402(g) limit is a personal limit, but indications are that this is a weird mix of the Plan having a separate deferral limit imposed in this scenario. Since this is a SECURE 2.0 item, the document doesn't reflect any information about this scenario because it wasn't a possible scenario prior to SECURE 2.0. From IRS Notice 2024-02 "Section 332(a) of the SECURE 2.0 Act amended section 408(p) of the Code by adding paragraph (11). Section 408(p)(11)(A) permits an employer to elect (in such form and manner as the Secretary may prescribe), at any time during a year, to terminate the qualified salary reduction arrangement under a SIMPLE IRA plan if the employer establishes and maintains a safe harbor section 401(k) plan to replace the terminated arrangement. Section 408(p)(11)(B) provides a combined limit on the total of the salary reduction contributions under the terminated arrangement and elective contributions under the safe harbor section 401(k) plan for the transition year described in section 408(p)(11)(C) (that is, the period beginning after the termination date and ending on the last day of the calendar year during which the termination occurs). Under this limit, the total of those contributions must not exceed the time-weighted average of the limits that apply, on a full year basis, to a SIMPLE IRA plan (after the application of the catch-up provisions of section 414(v)) and a section 401(k) plan. " Secure 2.0 Text: The terminated arrangement and safe harbor plan shall both be treated as violating the requirements of paragraph (2)(A)(ii) or section 401(a)(30) (whichever is applicable) if the aggregate elective contributions of the employee under the terminated arrangement during its last plan year and under the safe harbor plan during its transition year exceed the sum of— ‘‘(i) the applicable dollar amount for such arrangement (determined on a full- year basis) under this subsection (after the application of section 414(v)) with respect to the employee for such last plan year multiplied by a fraction equal to the number of days in such plan year divided by 365, and ‘‘(ii) the applicable dollar amount (as so determined) under section 402(g)(1) for such safe harbor plan on such elective contributions during the transition year multiplied by a fraction equal to the number of days in such transition year divided by 365.

I've run into the same situation a few times. In each case, it's been the incoming executive director of a smallish non-profit, but maybe that's just me. I typically recommend they (1) increase the executive's base salary by the premium amount the employer otherwise would have subsidized, (2) uncouple it from the lack of health plan participation, (3) offer the executive the employer's health insurance on the same terms as other employees, and (4) know that the executive can, but likely will not, enroll in the health plan if she chooses on the same terms as all other employees. Not a huge sample size, but it's never become a problem in my experience. (I realize it could, but there also could be other ways to solve that indirectly in the future.)

for The Pension Source (AL / AR / GA / KY / MS / TN / TX)View the full text of this job opportunity

It's likely a violation of the Section 125 cafeteria plan nondiscrimination rules (particularly the "uniform election" component of the contributions and benefits test) that could result in the loss of the safe harbor from constructive receipt for HCPs if discovered by the IRS. In this case, that would generally mean the HCPs would have taxable income in the amount of the available opt-out credit regardless of whether they received it. They might also lose the pre-tax treatment overall for all cafeteria plan contributions by having the amount of the available taxable cash (i.e., regular wages/salary) included in taxable income even if they elected the health plan. More details: https://www.newfront.com/blog/designing-health-plans-with-different-strategies Prop. Treas. Reg. §1.125-7: (2) Benefit availability and benefit election. A cafeteria plan does not discriminate with respect to contributions and benefits if either qualified benefits and total benefits, or employer contributions allocable to statutory nontaxable benefits and employer contributions allocable to total benefits, do not discriminate in favor of highly compensated participants. A cafeteria plan must satisfy this paragraph (c) with respect to both benefit availability and benefit utilization. Thus, a plan must give each similarly situated participant a uniform opportunity to elect qualified benefits, and the actual election of qualified benefits through the plan must not be disproportionate by highly compensated participants (while other participants elect permitted taxable benefits)…A plan must also give each similarly situated participant a uniform election with respect to employer contributions, and the actual election with respect to employer contributions for qualified benefits through the plan must not be disproportionate by highly compensated participants (while other participants elect to receive employer contributions as permitted taxable benefits). ... (2) Similarly situated. In determining which participants are similarly situated, reasonable differences in plan benefits may be taken into account (for example, variations in plan benefits offered to employees working in different geographical locations or to employees with family coverage versus employee-only coverage). ... (2) Discriminatory cafeteria plan. A highly compensated participant or key employee participating in a discriminatory cafeteria plan must include in gross income (in the participant’s taxable year within which ends the plan year with respect to which an election was or could have been made) the value of the taxable benefit with the greatest value that the employee could have elected to receive, even if the employee elects to receive only the nontaxable. Slide summary: Newfront Office Hours Webinar: Section 125 Cafeteria Plans

I can imagine at least two ways the IRS might unravel the opt-out offer: If the opt-out offer is not expressed in a written plan, it can’t be a cafeteria plan. I.R.C. § 125(d)(1). If the opt-out offer is expressed in a written plan but offered only to one offeree who is highly-compensated, how would that plan “not discriminate in favor of highly compensated participants”? I.R.C. § 125(c). If the opt-out offer is no cafeteria plan at all or is a plan that discriminates, the highly-compensated offeree gets no § 125(a) exclusion for whatever results from having a choice between money wages and health coverage. The employer might want an IRS-recognized practitioner’s advice about reporting wages for Federal income tax and for Social Security and Medicare taxes. The individual might want advice to help her file an accurate tax return. For questions about professional conduct, one might look to a BenefitsLink discussion in which Chaz gave us an intriguing thought. https://benefitslink.com/boards/topic/73510-health-fsa-and-hsa-how-does-irs-know/#comment-344822 This is not advice to anyone.

The opt-out compensation is only offered to the one HCE. And, yes, the HCE gets the amount solely because the HCE opted out and the payment is contingent on opting out. Peter's other questions are all good ones but I am just looking for the consequences to the HCE under the cafeteria plan rules for participating in this arrangement.

for Nova 401(k) Associates (Remote)View the full text of this job opportunity

Good question. The guidance is pretty clear that you can make HSA contributions (up to the applicable proportional limit) after losing HSA eligibility for the year (until 4/15 of the prior year). It's always been a bit of a mystery to me whether contributions made prior to becoming HSA-eligible in the year are valid. My feeling is it is probably technically considered an ineligible excess contribution, but I'd consult with a personal tax adviser given it's a gray area. It does seem like an unnecessary hassle to take a corrective distribution of 1/12 only to make that contribution back, but again in theory that's probably technically correct.

Thank you.

@Peter Gulia This is a creative approach worth exploring.

@John Feldt ERPA CPC QPA That is the approach most of the ministers take. However, some elect a portion of their deferrals as Roth to mitigate the tax burden on beneficiaries and the future possibility of the housing allowance exclusion being repealed.

Thanks @Brian Gilmore for the detailed explanation. Really appreciate the clarity you provided on how the FSA coverage end date affects HSA eligibility. I do have one follow-up question. In this scenario, my wife had already started contributing to her HSA on January 1. Since you mentioned she becomes HSA-eligible as of February (assuming the FSA ended in January and no COBRA was elected), would the January contribution create any issue or require correction? Thanks again for the guidance.

Congratulations! I know it’s eventually going to happen to me but I’m fighting it right now. 😇 Hope you get to enjoy it for a long time!

Congrats @Belgarath!!! You are coming back to discuss SECURE 3.0 with us just for fun though, right? Right? Bueller???

Slow reply but no you do not have to do an RMD. The shares in the ESOP do not count for ownership and if they sold before they turned 70.5/73..... there is no RMD.

ADP refunds are not particpant-driven transactions. The decision is made by the plan administrator. The custodian should rely on the representations of the plan administrator and/or trustee in cases like these. Most of the record keepers I dealt with took direction from me (acting as 3(16) Plan Administrator). But I don't see why they can't/won't take direction from the Plan Administrator. Are these brokerage accounts?

Congratulations on the retirement. Enjoy the next stage of your life!

We are working with a client where we did not process all of the refunds for the failed ADP test by March 15, 2025. The refunds have been done for all but 2 participants out of a total of 50 required to receive refunds. The 2 participants no longer work for the client and the investment company requires the participant signature on the refund form. They will not sign the form. Do we the client deposit a QNEC for the refund amount of those 2 participants?

If the employee will have about $195,000 in Social Security wages (box 3) on one 2025 Form W-2 wage report, that would make her a § 414(v)(7)-affected participant for 2026 (if she otherwise is eligible for an age-based catch-up). That a portion of the wages was from union labor does not by itself exclude that portion from § 414(v)(7)’s measure of Social Security wages. This is not advice to anyone.

The employee earned non-union and union compensation from one employer. His W-2 from the one employer includes both non-union and union compensation. He did not receive any compensation from the other employer in 2025.

Situation: H had an IRA. H died. W survived. She did not rename the IRA into her name as owner. She did not take any MRDs, even for those years she had reached and passed her RBD. W dies. The IRA balance is moved into an "estate account." Then, W dies. Her executor has the funds in the IRA moved to an "estate account" and then, 1/5th each transferred to five new "inherited IRAs", one each for the five children. How do we resolve the failure by W to take MRDs? Were the funds taxable when transferred from the IRA to the estate account (since estates per se cannot be IRA owners)?

If a participant has more than one common-law employer, 26 C.F.R. § 1.414(v)–2(b)(4) (not yet codified) sets detailed rules about whether one need not or may aggregate Social Security wages from two or more employers. https://www.govinfo.gov/content/pkg/FR-2025-09-16/pdf/2025-17865.pdf at pages 44549-44550 [pdf pages 23-24].