Leaderboard

I think it is one thing for the money to end up in an IRA because the person rolls it all or more common the person take some kind of in-service distribution and then terminate and it so happens to be the year they are 70.5. It is another thing to make the plan be send 100% of the money to the IRA and let the IRA worry about the RMD. That is a plan risking disqualification on the actions of the IRA company. I agree a mistake will most likely not end up being fatal. A bad plan that seems to purposefully ignore the rules strikes me as playing with fire needlessly.

Sounds like the accounts were set up wrong, or the investment company doesn't know what it's doing, or some combination. "Somebody" (who knows what they are doing) probably does need to prepare a 1099-R for the participant, and maybe an amended one if the first one was an actual 1099-R in the name of the trustee.

Sorry, but I disagree. If they are otherwise eligible for the match, but don't defer at least 5%, they would still be included in the ACP test. 1.401(m)-2 says the test includes "eligible NHCEs" and "eligible HCEs". Those are defined in 1.401(m)-5. Someone who could defer, but doesn't consent to payroll withholding is still an "eligible employee", and I think it would be the same if they made an election to defer less than 5%.