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Santo Gold might also ask: What is my Company’s responsibility with regard to determining the answers to the relevant questions or simply following instructions (other than determining whether or not there is a service agreement with anyone with respect to which the Company is obligated)? Are the questions in the post a matter of curiosity or are they a matter of gaining some advice for making some judgments. decisions, or recommendations that will be passed on to a client?

To David Rigby’s questions about what might lurk in the deal documents, someone might consider adding, for each might-be provision: Is the supposed provision merely a wishful statement? If a provision is somebody’s obligation, exactly which person, whether artificial or human, is obligated? Is the obligation consistent with, or contrary to, applicable law? Or relevant law? Even if not contrary to law, is the obligation legally enforceable? By which person? A? B? Some other person, whether artificial or human? This is not advice to anyone. And Santo Gold might wonder: Does my company have a current service agreement with A? Does my company have a current service agreement with B? Does my company desire to revise either service agreement, or both?

Peter's info (as he is clear to remind us, not advice) is thorough and excellent as always. It sounds like the client is happy with the current tax situation, and ejohnke is just looking to correct the potential disqualifying defect of allowing a distribution that shouldn't have happened. Is that accurate? If the individual could have had a distributable event, but the plan didn't allow the distribution, could the plan be retroactively amended to permit it? For example, the participant is 60 years old, so amend the plan retroactively to 2025 to permit in-service distributions at age 59-1/2. Problem solved. If there really is no possible distributable event (don't forget that employer money sources can have much more liberal distribution restrictions than 401(k) deferrals), then you might still be able to get relief for the distribution (and leave the money in the Roth IRA) through VCP.

If making a payment payable to a payee other than the retirement plan’s participant, beneficiary, or alternate payee (presumably because the distributee requested a direct rollover), the plan’s administrator, trustee, custodian, and payer (among them) have some responsibility to check that the payee not only is the one the distributee instructed but also is a banking, insurance, or securities institution Internal Revenue Code § 408 recognizes as an IRA custodian. Else, the plan might not get a satisfaction or discharge of the plan’s obligation to pay the plan’s benefit. This is not advice to anyone.

If the custodian of the non-Roth IRA received an amount presented as a rollover-in contribution in circumstances in which the custodian did not know, and would not suspect, that the payment was not the employment-based retirement plan’s distribution, that custodian might not have erred. If the amount the employment-based retirement plan paid was not an eligible rollover distribution and so was not the source of the non-Roth IRA’s rollover-in contribution, the individual might want one’s lawyer’s advice about whether an IRA, and which of them, might have an excess contribution and, if so, what income and excise tax consequences might result from that excess. After considering that advice, the individual might want one’s lawyer’s advice about the probability or improbability of the IRS detecting tax-return positions that there was and is no excess. If the individual, the employment-based retirement plan’s administrator (if other than the individual), or a service provider can cut past a usual customer-service worker to someone who not only can recognize what happened but also can decide what the custodian is willing to do, there might be a fleeting and limited opportunity to persuade everyone on a complete undo, including correcting or adjusting all 2025 tax-information reporting. (In my experience, getting a custodian’s attention might turn on its desire to earn or maintain good will with the requester or presenter; even with a listening audience, even clear merits might not be enough to get a custodian’s favorable response; and a presenter’s ability to teach the custodian how to implement an undo often is a deciding factor in the persuasion.) If there is no unraveling from the IRAs, the individual might want one’s lawyer’s advice about whether the plan administrator’s failure to apply the plan’s provisions tax-disqualifies the employment-based retirement plan; if so, whether the defect can be corrected; and, if not corrected, how likely or unlikely it is that the IRS would detect the defect. This is not advice to anyone. ejohnke, how confident are you that the individual was not entitled to a distribution from the employment-based retirement plan?

Wow! Sounds like a scheme to skim off a fee. Why would the PA want to assist that? Never look for trouble.

A few thoughts (there are probably other relevant questions): Are the facts presented accurate? Are the facts presented complete? Did the buy-sell agreement contain any provisions relevant to the future of the plan? Did the buy-sell agreement alter (or attempt to alter) any plan provision of the A plan? Does A still exist or is it a wholly owned subsidiary of B? What does the A plan say about a distributable event? Does anyone in authority at B know what's going on? Has legal counsel for B made any statements about this?

Stock sale or asset sale? If asset sale: A still exists as a shell company and the owner(s) of A can sign on behalf of A. The participants can take distributions right after the sale date since they are no longer employees of A. If stock sale: B is now the sponsor of The Company A 401(k) Plan and has the authority to sign. Participants can not take a distribution until the plan termination date. Termination triggers the successor plan rule and B may not be allowed to maintain a 401(k) plan for 1 year after the distribution date. This is why, with a stock sale, it is important to terminate the seller's plan before the sale date, or be prepared to merge the plans.

There is a follow up question: Who decides (who signs) for Company A's plan termination, Company A owners or Company B (since Company A no longer exists)?

Company A has a 401k plan as does Company B Company A is sold to Company B. Company A employees are now Company B employees. No plan merger happening. Company A will terminate their 401k plan, but not for a few months. Can former Company A employees take distributions from Company A 401k plan immediately since they are no longer Company A employees? Eventually they will with when the plan termination date is decided, but can they do so before then? Thank you.

It appears there is an intermediary of some sort who would get the funds and then - we don't actually know. Does the intermediary get a fee, then send the balance to a bank or trust company? Is the tax deferred status affected? That's the kind of question we are having before telling the trustee to make the distribution.

Don't know of anything that can help. To repeat, it is my understanding that once the money is in the Roth IRA, it is not coming back.

Perhaps I didn't read your post closely enough, but when I read "to be paid, from plan assets" my focus was on the plan restoring the amounts.

An Individual Retirement Account’s trustee or custodian is a bank, trust company, or Treasury-approved nonbank custodian, typically a securities broker-dealer. An Individual Retirement Annuity’s insurer must be an insurance company. If neither the check nor any accompanying instructions names the individual, won’t the payee financial-services business decline to accept the payment?

This client isn't looking to reverse or recharacterize the funds. They really do want the pre-tax funds to now be Roth and intended to pay the taxes. The funds weren't eligible to leave the Plan. This transaction was supposed to be an In Plan Roth Conversion. They should have rolled into a Roth 401(k) account inside the Plan...not a Roth IRA outside of the Plan. I am struggling with the Custodian to return the funds to the 401(k) Plan since they never should have left.

Former employee returned standard distribution election form (CCH): Rollover to "IRA" Name of IRA: "xxx xxxx Corp" We have always instructed trustee to make checks payable to : "xxx Corp IRA FBO former participant" Any thoughts on if writing the check to just a Corp. is ok? Does it leave the plan with any liability as to the tax exempt status of the distribution?

If the employer has enough money: Might the plan’s sponsor amend, with retroactive effect, the plan so all participants get for 2025 the same higher matching contribution—what had been provided only for nonhighly-compensated employees? BenefitsLink mavens, would this be feasible or infeasible?

An IRA can not be part of a qualified plan. A Roth IRA can not be rolled over into a Roth account in a qualified plan. Just set up the new account. Do it right.

Participant is subject to the Roth catch-up mandate in 2026. He has an old Roth IRA that is not part of the 401k plan. Participants direct their own brokerage accounts. He is asking if he rolls the Roth IRA to the Plan, will this enable him to deposit the Roth catch-up into the Roth rollover account. He is trying to avoid setting up another brokerage account just for the Roth catch-up. Is there anything else he should be concerned about in this scenario?

Well, the 31% limit is going to be 117,800. The DC portion of that can't go over 95,000. If there is a mandatory DB amount that's nonzero, that eats into the 117,800.

Owner must start taking RMD in 2026. He has Roth Assets of 500,000 12/31/25 Pre-Tax assets of 500,000 12/31/25 A current life insurance policy is also in the account. The "cash value" as of 12/31/25 per the policy statement is 120,000. The life policy will remain active with premiums being paid. is the RMD calculated on 500,000 or 620,000? it seems to read on the IRS website that the life policy would not be included in an RMD calculation unless it is the year that the life policy is being distributed. But I am not sure if I am reading that correctly. I have found conflicting information elsewhere. Any insight would be appreciated.

$40,000 is maximum and not mandatory since 430 is much less. I agree it would be 25% in the PS and nothing in DB but wondering if anyone doing anything different or if a combination of $40,000 in the DB plus $55,000 as PS would be ok (though I don't see anyone wanting to do that considering the overfunding issue in the DB).

The person that ought to have been responsible to pay, or reimburse payment of, a penalty—whether an ERISA title I penalty, or a tax law penalty—restores to the plan the money the plan was not responsible to pay, with interest or another measure of the time or investment value of the money. And, if the person that ought to have been responsible obtained a gain by having the use of what in conscience was the plan’s money, the person disgorges not only the money had but also its gain and pays it over to the plan. The “interest” portion of the plan’s recovery is the greater of the time or investment value of the money or the other person’s gain by having the use of what in conscience was the plan’s money. Equitable remedies run to the plan that was deprived of what in conscience was the plan’s money, other property, and rights. Restoration or disgorgement does not come from the plan. These remedies come from the person that had the money that ought to have been in the plan, and go to the plan to be made whole. This is not advice to anyone.

Thanks for the advice/warnings, at this time I am researching on what can be done if anything. Nothing would be done without a lawyer.

Usually, I would not add anything to the responses of the wise folks on this thread but I have to commend the OP for questioning the response they received from "AI". While AI may give one a starting point, AI responses can be flat out wrong so, in my view, AI responses should always be viewed extremely critically. I fully agree with @Peter Gulia and @austin3515. I would like to add a couple of thoughts. OP notes that their initial query is in response to IRS Notice CP1348. The IRS's purview does not cover the entire universe of whether plan amounts can be used to pay penalties. So what occurs in an IRS Notice regarding prohibited transactions may not be the end of the story. Their purview only covers whether there is a prohibited transaction under 4975 and the consequences under the tax code. @austin3515 and, ultimately, @Peter Gulia look at the entire universe in bringing up the views of the DOL under ERISA. Also note that the concept of "plan assets" is an ERISA concept monitored by the DOL. In my experience, under ERISA, civil penalties assessed against fiduciaries, plan sponsors, or other parties for some sort of legal violations or prohibited transaction cannot be paid using plan assets. Plan assets must be used exclusively to provide benefits to participants and beneficiaries and to defray "reasonable administrative expenses." I have not researched this recently but my understanding is the DOL maintains that paying penalties from plan assets is not a reasonable expense and is strictly prohibited. DOL has stated that penalties under ERISA 502(i) must be paid by the party in interest involved in the transaction not the plan, and using plan assets to pay penalties is likely a breach of fiduciary duty. Also, regarding restoration or disgorgement as @Peter Gulia brings up, I have colleagues who distinguish between restoration/disgorgement, which are remedial in nature, as opposed to penalties, which are punitive in nature. They seem to imply that plan assets could be used for restoration or disgorgement but I must be thick-headed because I don't see it. How can you use plan assets to restore something to the plan? disgorge from plan? There may be circumstances that I am just not thinking of but it seems like a zero sum game.