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Happily retired but enjoy reading benefitslink to reconfirm my decision.

My concerns revolve around participant education. I think the payroll vendors can figure out how to code their systems to allow deferrals to continue similar to age 50 catchups, but it will come with time, expense and plenty of mistakes for stopping a deferral when they should have continued. Some recordkeepers currently allow simultaneous elections (1) "regular" deferral (Pretax and/or Roth) (2) "catch up" deferral (pretax and/or Roth) that are withheld that the same time - I don't like that programing, I prefer one election that just continues if you are catch up eligible. So in this programming instance there will potentially be four elections (1) "regular" pretax (2) "regular" Roth (3) Age 50 catch up Roth (will an existing catch up pretax election automatically switch to Roth?? or is a new election required??) (4) Age 60-63 catch up Roth. Or for recordkeepers that just have one election on file, participants need to be educated about how to make a deferral election of non-catch up pretax/Roth and catch up Roth and the payroll systems need to be smart enough to handle it. I think this can be overcome, but from a participant election perspective, just sounds confusing and that will lead to mistakes.

SECURE extended the deadline to adopt to due date of the tax return with extension. Though if there is a 401(k) component, you can't make the 401(k) contributions retroactively.

Wishing you all happy holidays and great, prosperous New Year. The best think tank ever.

Correct. K-1 from an S Corp is payments for being an owner. It's like getting a dividend check for owning stock in IBM. It's not earned income.

Sole Proprietors don't receive W-2 from their sole proprietorship, they have earned income that is reported on Schedule C. Since you said he has S-corp pass through income I'm going to assume you mixed up Sole Prop and S-corp. But who knows maybe he has both for some reason. The answer to your question that the accountant should be able to tell you is to increase in 415 limit he'll need to pay himself higher W-2 wages (or have higher earned income if it really is sole prop) instead of dividend or distribution income from the S-corp. I mix up the correct term on distribution/dividend because I'm not a CPA but his CPA should be able to tell you.

If the email is from EBSA, it might be a little disappointing that a government agency is unaware that most of us have been taught not to respond or react in any way to an email not preceded by a known course of dealing or that otherwise leaves a doubt about its authenticity.

Luke, yes, they signed up asked to defer, and the ER failed to withhold or transmit a payment. As it turns out, the IRS has really specific guidance that I found: If you excluded an eligible employee, you must make up for the employee’s “missed deferral opportunity” by making a contribution of 1.5% of compensation for the period of the employee’s exclusion, plus earnings (calculated from the date that the elective deferrals should have been made through the date of correction). The “missed deferral opportunity” is the economic loss to the employee from not having a portion of compensation deferred on a pretax basis to a retirement account in which the amounts deferred can accumulate tax-free. Since the employee didn’t have a chance to make an election, IRS safe harbor correction methods assume that the employee would’ve elected to defer 3% of compensation. The required corrective contribution to replace the missed deferral opportunity is 50% of the missed deferral, or 1.5% of compensation. If, under the plan, the employer contribution is a 3% match, then the corrective contribution should include a matching contribution of 3% of compensation plus earnings (calculated from the date that you should have made the required contributions through the date of correction). If the improperly excluded employee made the 3% of compensation elective deferral, as assumed in the prior paragraph, then the employee would’ve received a matching contribution equal to 3% of compensation. (Note: This contribution is in addition to the corrective contribution you must make to replace the “missed deferral opportunity.”)

It's legit - it was announced a couple of weeks ago. https://www.asppa.org/news/dol-modernizing-efast-authentication The plan is apparently to stop allowing old EFAST login credentials by September 1, 2023 and only allow login.gov after that point. We'll see how that works out. As Lou pointed out, MyPAA (for PBGC filings) made the same change earlier this year, but they had the foresight to make it required and only stop supporting the old logins only after the normal due date for calendar-year filers.

Does the S-corp have enough cash to increase his W-2 via year-end "bonus"? (That may raise other tax issues ... but it would allow a higher contribution.)

I don't disagree with the points of view expressed so far. Beyond just the requirement for automatic enrollment, the requirement for automatic escalation is likely to be burdensome, as it requires the employer to separately track which employees have and have not made an affirmative election, potentially for as long as 12 years after they first became eligible! Small comfort though it may be, we do get a safe harbor correction method in SECURE 2.0 sec. 350 which should make it easier to stay in compliance for an employer whose implementation is less than perfect.

Also, if it's a defined benefit plan (DBP), where a valuation needs to be done to determine the contribution that will be deposited by that tax return due date, you'll want to get the document done and signed far enough in advance. I recommend anyone considering a DBP retroactive to 2022 to put their tax return on extension for the extra time but make the decision and get the document done in the first or second quarter of 2023.

General rule - if the employer and employee are not paying FICA/Medicare or SECA (self-employed FICA/Medicare) taxes on the income it is not earned income and not considered compensation for retirement plan purposes.

Ron401k illustrates a challenge some (not all) employers face. There are plan-design ways to counter the behavior described, but they are work to administer. Further, the observation helps remind us that each of the four new Internal Revenue Code texts that allows a plan’s administrator to rely on a claimant’s certification is a may, not a must or shall.

I believe it will slow plan sales for smaller employers. Automatic enrollment is not a popular option in the plans that we currently sell. A little off topic, but existing plan sponsors will also have stressful administrative changes coming. Almost all plans without Roth will need to be amended to allow Roth contributions. Do you think payroll providers will be on top of switching from pre-tax contributions to Roth contributions once an employee earning more than $140,000 reaches the deferral limit? And how about recordkeepers, will they need to convert pre-tax 401(k) contributions to Roth contributions if they need to get reclassified as catch-up contributions due to a failed test, for employees earning more than $140,000? The March 15th deadline is stressful enough as it is, let alone adding additional nuances for corrections that make sense in theory put are going to be difficult in actual administration.

Currently we still require documentation to support the financial hardship, and are told by newer participants "I didn't have to do this at the last place I worked." Here is what we see in a 150k+ participant plan. Participants with no intention to save for retirement, defer to get the match. Then, several times a year claim financial hardship to prevent eviction AND can produce a valid eviction notice. As a very large employer it is a challenge to question this behavior, as we would be viewed as questioning an employee's integrity. We expect to see more of this if we move to deemed hardships (self-certification) and have set system warnings for participants that take more than X hardships within X months, to then request supporting documentation. Despite our best efforts, if we are not careful, 401(k) plans will become more and more like personal bank accounts, with a nice ROR if there is a match!

Yes it will certainly increase the employer's cost in contribution, and administrative fees and soft in-house costs. Their approach is wrong, financial literacy is the answer. There are many ways individuals can save for the future, but do they, not. I am amazed by the simple fact that many individuals fail to establish an emergency fund, let alone saving for retirement. And the number of individuals who do not have a budget. Education and focusing on those less served is the answer. Just my 2 cents (or 1 cent now a days!). Merry Christmas, Happy Holidays, and all the best to all for a safe and healthy New Year.

Cost and complexity (distraction from running a business) are the two most often expressed reasons for not having a plan. Secure 2.0 will effectively increase costs and increase complexity. The answer to the OP's question is, in our humble opinion a resounding: YES.

Our efast people got this today. I think it's legit but current people don't have to do anything for several months, so I'm waiting.

Sounds like it might be legit if it is about Login.gov which seems to be a thing that US government agencies are using. I had to set mine up for PBGC last year but I'm pretty sure it ties into multiple government logins. That said I have not seen this particular email and can't confirm it's not a scam. As always if you're concerned and it is something you do use, I'd suggest not following the links but go directly to the website URL in question that you know is legit to verify.

You still need to comply with 415 limits and the overall employer deduction limit is going to be capped at 25% of pay under 404. Just because you have a match instead of a profit sharing doesn't get you around the limits. That said if you have a REQUIRED match in the document it might force you over the 404 limit on deductible contributions and force a nondeductible contribution subject to an excise tax which might be one reason some "solo-k" documents don't allow matching. For example say you have a document that that requires you match deferrals dollar for dollar with no cap. And have the following set of facts - W-2 owner (only employee) pay $20,000. W-2 401(k) contribution $10,000 Employer required match $10,000 The match is clearly required by the document and clear not in violation of 415 limit so it has to be made. But compensation is only $20,000 so the 25% deductible limit on employer contributions is 25% or $5,000. Therefore $5,000 of the match would be required but non-deductible and also subject to a 10% excise tax. Not an ideal result and not a set a facts you'd be likely to see but just an extreme example of what could be allowable and still get you a bad result.

Also, if it's only the owner, what difference does it make if it's matching or non elective? The 415 and 404 limits will impact both the same.

Then you are a reading a document that doesn't allow for matching contributions. A Solo-K is simply a marketing term describing a 401(k) plan that covers only the owner. But often times it just has has limited document choices about that is offered in the document and may not offer everything that might be allowable under the code.

If allowed by the plan document.

No. The annual additions limit is equal to the lesser of $61,000 or 100% of compensation. In this case, the smaller of those two is 100% of compensation, which is $40,000. If they already contributed $20,500 in deferrals then the maximum after-tax contribution they could make would be $19,500.

I would add a well thought out amendment to the vesting schedule would cover this fact pattern. In the last 5 or so years I have had two clients amend from a 3 year cliff to a 6 year graded schedule. I asked for a change to the amendment before it was signed that makes it clear that we will look to a person original hire date to determine which schedule they will be on if they are rehired. Both of these firms have thousands of employees and they have a lot of rehires. It was decided it would be easiest to track if we looked to original hire date to decide which vesting schedule to use. If the amendment is silent on the topic I would agree with Cusefan that the years of service should apply to the new vesting schedule is the most reasonable way to read things.

A qualified plan document is a qualified plan document whether for one employee/participant or 10,000. As many have echoed in this forum, a "solo 401(k)" or "solo-k" is just a marketing term for provider's product. If you have an owner-only participant, you'll likely want pre-tax deferrals, Roth deferrals, catch-up deferrals, discretionary profit sharing and employee voluntary after-tax contributions. If you are hoping to do for 2022 you need to hustle because document and salary deferral election will need to be signed by 12/31, and that only works if unincorporated sole proprietor, unless getting big bonus on 12/31 from which to defer.

After tax voluntary contributions can be made if allowed. They are considered an annual additions under IRC §415 and must be tested in the ACP test. So if is a one person plan you don't really need to worry about ACP testing but you do need to be mindful of 415 limits. And obviously you need to track the source separately along with the after tax basis.

Is it 401(k) money? If so I sincerely doubt that the plan allows in-service withdrawals prior to age 59½, unless there is a hardship or some other special circumstance. If it's rollover money, or seasoned employer contributions (not safe harbor), then go ahead—plan doc permitting of course.