Leaderboard

It may not be a pooled account but it is still a single plan, and the contributions are assets of the plan - not of any particular individual - until they are distributed. Yes, reallocate the excess contributions (plus earnings) to other participants. The plan document presumably says that all contributions will be allocated to participants' accounts, with a maximum of the 415(c) limit. You have an operational error since that limit was not applied correctly. You can self-correct the error by undoing the excess (remove those contributions from the participant's account) and then follow the plan document's instructions as to what should have been done with them (allocate according to the plan's formula).

Had this same problem last year. A new client had a pre-existing IRS model SEP and wanted to adopt a DB plan. We set up the DB plan and then scurried to find a non-IRS model SEP to restate by end of the year. The only vendor we found that sponsored a non-IRS model SEP was Prudential. The client set up the SEP account there, but wasn't too happy with Prudential's offerings. We are planning on terminating the SEP this year and instead setting up a 401(k) profit sharing plan. Much more flexibility, especially coupled with a PBGC covered DB plan.

Curious as to how the insurance company is correct? The OP said the insurance company said no 1099 was needed. I'm not commenting on the taxability, or lack thereof, but regardless of whether you believe it is a rollover or a taxable distribution, 1099 still needed. Perhaps by "insurance company" OP meant an agent, who might not know beans about this stuff?

Because the law says it does. There is a specific rule - IRC 402A(c)(4)(E) - that says amounts transferred from a pre-tax account to a Roth account will be "treated as a distribution" which is why you can do this. There is no rule that says you can net your RMD against your planned contributions for the year and avoid taking a distribution if you contribute less. "Seems to" is not the same thing as "is." The main thing you're missing is that qualified plans have to have their assets in a trust, under the control of a trustee. Under your method, the trust never has control of the amount, so it can't be considered to be plan assets, so it can't be used to satisfy the RMD requirements. Your chart also seems to be saying that the $10,000 will simply remain in the business account. The RMD doesn't get paid to the business, it gets paid to the participant. The business would have to pay it out to the participant in that case, and there might be questions why a payment directly from the business to an employee isn't being treated as wages. If the goal is just to avoid making a payment out of the main plan account, what you might be able to do is to open a checking account in the name of the plan. Then deposit the $15,000 to that account, transfer $5,000 of it to the main plan account, and pay out the remaining $10,000 to the owner. That seems unnecessarily complicated to me, but maybe it will accomplish your aims.

You have one gateway for your one aggregated plan. You can't test the gateway on a restructured or component plan basis. I'm disregarding disaggregation of otherwise excludable employees here, since I don't think that's what you're asking about. This person would need the 7.5% gateway (if that's the gateway minimum).