Leaderboard

Santo Gold, there is a two-year wait. The two-year period starts for each employee on the date he or she first receives a contribution under the SIMPLE. So yes, they could park the money from the k plan in a rollover IRA, wait until 2 years after they each receive first contribution to the SIMPLE, and then roll from IRA to SIMPLE IRA. It's a rule of convenience. 72(t)(6) imposes the higher, 25% early distribution penalty on amounts coming out of the SIMPLE during first two years of participation in SIMPLE. Of course the early distribution penalty for amounts coming out of a k plan and not rolled is only 10%. But to avoid having to require custodians to segregate rollovers to a SIMPLE IRA from new contributions in the SIMPLE IRA, they don't let you roll non-SIMPLE money to a SIMPLE for two years, just like you can't roll SIMPLE money to a non-simple for two years, since then, unless there was some tracing rule (which would be an admin "nightmare"), you could wash the money through the new, non-SIMPLE plan, take a quick distribution (most plans allow distributions of rollover accounts at any time), and avoid the 15% of the 25% penalty.

The top heavy exemption says: Voluntary after-tax contributions are not part of a CODA [see 1.401(k)-1(a)(2)(ii)] and they are not match or safe harbor contributions, so a plan that has them does not meet the requirements for the top heavy exemption.

The original question was: Can he take all his Roth money out? The answer is maybe he can, and maybe he can't. As Luke and I pointed out, we agree with Kac1214 (and you) that a plan may provide for different distribution options for pretax vs. Roth. What Luke and I are pointing out is that any such provisions are ALSO subject to the in-service distribution qualification rules and the hardship qualification rules, all of which apply equally to pretax and Roth deferrals. So the participant who wants all his Roth money is entitled to all of it (if still employed) only if the participant meets the criteria for (1)an in-service distribution of "deferrals" or (2) a hardship distribution of "deferrals" and if the plan has an option to allow distribution of Roth funds (but not pretax funds) in accordance with the plan's general in-service distribution rules (or the plan's general hardship distribution rules). Every qualified plan is going to have restrictions, e.g., in-service distributions cannot be made prior to age 59 1/2 or hardship, and hardship is limited, for example, to the maximum amount that meets the financial need. So the administrator needs to determine what amount can be paid under ALL the provisions of the AA and BPD bearing on the subject, some of which make a distinction between Roth and pretax, and some of which don't. So, any general restriction on the distribution of "elective deferrals" applies to Roth deferrals, even if the box is checked that Roth deferrals "may" be distributed pursuant to an option on the AA so stating. That AA option does not exist in a vacuum. If this person is under age 59 1/2, still working, and does not have a financial hardship as defined in the plan, I view it as extremely likely that I could find language in the BPD prohibiting the distribution of Roth funds AT THIS TIME. Maybe later, like when he is age 59 1/2, or when he has a plan-defined hardship, or the plan terminates (without any other DC plan within the controlled group to which all deferrals must go in the event of a plan termination). See Regulation 1.401(k)-1(d) with respect to age 59 1/2 and plan termination, and somewhere else in that regulation with regard to hardships. It's not his money, not yet, it is still trust assets in a tax-qualified trust associated with a tax-qualified 401(k) plan.

I think the first distribution calendar year would be the year they attain age 70.5 - since the definition does not make any reference to the amount of the accrued benefit or vesting. I think you're probably right about using 4/1/2022, or really 3/31/2022; in effect you are saying that a distribution of $0 per annum commenced on the employee's RBD of 4/1/2020, and that it increases to the amount of the vested benefit during 2021, so the end of the payment interval in the next calendar year is 3/31/2022 and that is when the payment is due. I agree delaying it to 12/31/2022 seems like a stretch.

Paraphrasing, 1.401(a)(9)-6 A-6 says that a benefit is treated as accruing at the time that it becomes vested. Paraphrasing again, 1.401(a)(9)-6 A-5 says that distributions must commence for amounts that accrue after the RBD with the payment interval that ends in the calendar year following the year of accrual. The participant becomes vested at some point during 2021. Therefore the benefit must commence with the payment interval ending in 2022. So in the case of an annual payment, by 12/31/2022, for a monthly payment, by 1/31/2022, and such. With regard to your question about not knowing the actual benefit accrued as of the date payments begin, A-5(b) of the same reg also says (verbatim this time): A plan will not fail to satisfy section 401(a)(9) merely because there is an administrative delay in the commencement of the distribution of the additional benefits accrued in a calendar year, provided that the actual payment of such amount commences as soon as practicable. However, payment must commence no later than the end of the first calendar year following the calendar year in which the additional benefit accrues, and the total amount paid during such first calendar year must be no less than the total amount that was required to be paid during that year under A-5(a) of this section.