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There is much to like in Paul I's sense about avoiding an ordering regarding previously-taxed amounts if a corrective distribution would not be a Roth-qualified distribution.

Not catch-up eligible. Good call out though and I should have included that fact in the original post. I think it was just an error from the payroll provider.

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If I understand the issue, the plan limit is 10% of the sum of the pre-tax and Roth deferrals for the year, the excess deferrals are excess amounts that must be refunded. The correction is to make a refund so the total of deferrals remaining in the plan are 10% of compensation. The correction method does not specify any requirement on whether that the refunded excess amounts must reflect proportion of pre-tax and Roth deferrals that were originally made into the plan. The plan also has no guidance. With the lack of specific guidance, its on the Plan Administrator to decide how the plan will address the situation. The PA needs to keep in mind that this type of operational decision establishes a precedent for future occurrences. One consideration for the PA to keep in mind is the time and effort involved in making the refund. Operationally, refunding from pre-tax first before refunding any Roth is far less complicated than either refunding pro-rata or refunding Roth first. Consider that refunds of Roth get into issues like tax basis accounting, possible taxation of earnings paid from the Roth account, and year of taxation. If these are not concerns for the PA or the PA is a masochist, then the PA could consider asking the participant to specify how much to refund from each account.

You have probably already thought about this, but I will ask... Is the participant catch-up eligible? Could that be the reason the payroll system allowed this individual to exceed the document limit of 10%?

Check the documents governing the plan to discern whether the plan allows or precludes a distribution made by delivering property rather than paying money. If need be, amend the plan to allow a distribution of property. Instruct the broker-dealer to redeem or sell the window account’s securities other than the one that’s untradeable. Apply the money raised as the plan ordinarily does. Instruct the broker-dealer to re-title the remaining securities account as the distributee’s individual “taxable” account, no longer held regarding the retirement plan. Report one or more Form 1099-Rs so a report includes the fair-market value of the untradeable security. That a security no longer trades on an exchange (or never traded on an exchange) does not by itself mean that the fair-market value is $0.00. Even a petition, involuntary or voluntary, of the issuer’s bankruptcy, even for a liquidation bankruptcy, does not necessarily make common stock shares worthless. The plan’s administration should not deprive the distributee of the value of the untradeable security. Even if untradeable now, it might later get an offer. This is not advice to anyone.

Hello - I have a plan transferring to a PEO with an MEP (Justworks: PEO & Payroll Solutions for Small Businesses - Justworks.), assets at Empower. I am not familiar with MEPs. Will this be a plan termination or just a transfer of assets? Not sure with MEPs if the plans involved keep their plan names or the MEP is a totally different plan- Thank you in advance!

If the point you ask about isn’t in the IRS’s correction procedures, consider: Remove the excess from the elective-deferral non-Roth and Roth subaccounts in the same proportions that the participant contributions (including the incorrect amounts) had been directed to those non-Roth and Roth subaccounts. That way might approximate what would be the account had the incorrect amounts not been taken from the participant’s pay. And it might lessen a participant’s opportunity to make an after-the-fact tax-treatment choice. Yet, this might be merely one of a few ways to correct the failure. This is not advice to anyone.

Hi, Plan that is terminating has only one participant with balance in SDB and the security is currently not tradable. the Plan sponsor wants to close the plan what option do we have? can the plan sponsor direct to move the SDB to a different fund?

RatherBeGolfing, thank you. It was filed with the efast system and not a 3rd party software. They gave me an option to press submit, and file it, with the error. After hitting submit, they said it t was successfully received.

A 401(k) plan allows for Roth contributions. It also contains a provision limiting deferrals to 10% of participant compensation. A participant contributes 12% of their pay in both ED (pre-tax) and Roth throughout the year (1/1/2025 through 12/31/2025). It is now just discovered and deemed an operational failure for not following the terms of the plan document. The plan document does not outline how this should be corrected. The plan sponsor is self-correcting under EPCRS. Is there any guidance on how to determine what excess to refund? (given that the participant deferred both pre-tax and Roth) Is it last in - first out? Is it prorated somehow? Or is there no guidance on this and the plan sponsor should just choose something and be consistent?

Yes, if someone gets employer contributions in a year that are equal to their 415(c) limit of the lesser of 100% of pay or $72,000, then any and all deferrals would be deemed catch-up contributions. In your example, the person could actually have had compensation of $72,000, an employer contribution of $72,000, and $8,000 in catch-up contributions.

Background: Non-Electing 403(b)(9) Church Plan 2026 Limits apply Participant age 50 Includible Compensation = $80,000 Deferrals = $8,000 Employer Contributions = $72,000 Question: I will admit this seems so basic, but for some reason I am feeling perplexed today (sigh). Perhaps my understanding has been wrong all along, but I was originally under the impression that one did not have catch-up contributions until he/she exceeded the 402(g) limit. Is there any instance where the employee deferrals in this scenario would be considered as age-50 catch-up contributions, avoiding an excess contribution scenario? Does the timing/order of the contributions matter? (For example, if first the employer contributions were made and maxed out the 415(c) limit, could deferrals made after that count as catch-up contributions?) I read through section 414v and became confused by it stating [paraphrased], catch contributions are deferrals made that exceed ANY of the applicable limits, of which include limit on elective deferrals OR annual additions. In the scenario above, he exceeded the 415(c) limit with employer contributions. Does that point alone justify future deferrals in that year as catch-up? "With respect to an applicable employer plan, catch-up contributions are elective deferrals made by a catch-up eligible participant that exceed any of the applicable limits set forth in paragraph (b) of this section ... paragraph (b): (b) Elective deferrals that exceed an applicable limit—(1) Applicable limits. An applicable limit for purposes of determining catch-up contributions for a catch-up eligible participant is any of the following: (i) Statutory limit. A statutory limit is a limit on elective deferrals or annual additions permitted to be made (without regard to section 414(v) and this section) with respect to an employee for a year provided in section 401(a)(30), 402(h), 403(b), 408, 415(c), or 457(b)(2) (without regard to section 457(b)(3)), as applicable. TIA

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See what I mean? Just kidding, Peter - that's good stuff - thank you.

@SSRRS Did you file using third party software (FIS, FTW, etc...)? Did you get an AckID, or did this prevent you from actually getting it filed? While I agree it sounds like an error on their end, it will probably take quite a bit of back and forth to get it resolved.

If ficuciaries put something in meeting minutes stating why they choose the target date suite and ages, claim that they believe it's reasonable and appropriate based on its workforce demographics and other observations, and demonstrate monitoring ahead, my wild guess is that would be good enough and more than most plans do. I wouldn't be too specicfic in the minutes or fiduciaries could paint themselves into a corner.

Hi, Thank you as always for all the insights. The 5500 for a 6/30/2025 plan year end, is due by 1/31/26. This came out on Saturday. Therefore, the 5500 and the 5558 must be filed ON or prior to 2/2/26 (since 2/1 26 was a Sunday). We filed the 5558 on 2/2/26 ( today) with I file and got a validation error that stated " you have filed the form 5558 after the return's normal due date and may not be approved for an extension based on this form 5558 that was submited". I hope this is an error on their part and the extension will be approved? Thank you

Hoping that Mike Johnson doesn't see his shadow and give us 6 weeks of government shutdown!

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