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No. Think of the loan as a phantom account. You keep accruing interest on the phantom account, so if, a year after the deemed distribution, she has accrued interest of $2000, her total loan balance is $18,000, which is an effective offset against the $50,000 maximum. That's the purpose of accruing interest. When she takes an actual distribution, she gets her entire non-loan balance, and the loan, whatever the amount at the time, is "distributed" but there is no reporting since it has already been reported (on a 1099-R).

Assuming the eligibility provisions for the 401(k) are the same as the Safe Harbor, the early inclusion amendment for 401(k)-only should not be problematic from a Safe Harbor standpoint. The individual isn't eligible for the Safe Harbor contribution, so this doesn't affect the Safe Harbor status of the plan. The next quandary is whether a plan correction offered through EPCRS opens a can of worms for another qualification issue: Top Heavy There is nothing in EPCRS or in the ERISA Outline book that addresses this situation specifically. However, the Correction Principles in EPCRS state that "If an additional failure is nevertheless created as a result of the use of a correction method in this revenue procedure, then that failure also must be corrected in conjunction with the use of that correction method and in accordance with the requirements of this revenue procedure." The Top Heavy Minimum does not have to be met with a Safe Harbor contribution though. You could provide a Profit Sharing contribution subject to vesting that is 3%, or less if the highest allocation to a Key is less. Path of least resistance I suppose is to give him early inclusion in the Safe Harbor, but it's certainly not the only solution for meeting Top Heavy. Lou S. is correct: Effective for plan years beginning after December 31, 2023, otherwise excludable employees will get parked into a separate Top Heavy Test, and chances are that group will not be Top Heavy, so in most cases there will be no Top Heavy Minimum for Otherwise Excludables.

Here is my take, assuming the husband and wife companies A & B are a control group: 1) Yes, it's plan assets from all plans of the employer/control group. 2) Plan covers only owners and spouses, so yes, EZ still appropriate for now. In 2024, under new rules they may no longer be a control group and I do not think you can file an EZ for a multiple employer plan, which you would then have. 3) No other schedules or attachments. 4) Filing and extension should not trigger anything because the extension would be the first filing of any kind for the plan, so neither IRS nor DOL would have any knowledge of the plan's prior existence or when its assets exceeded $250,000. So I would file the extension, then get 2021 filed under EZ delinquent filing program and then filed 2022 extended return. Note, if the companies are not a control group - not in community property state, no minor children, no involvement in the other's business - then you have a multiple employer plan and all bets are off and you likely have many more delinquent returns (SFs) to address. Come 12/31/2023, you may want to spin off B into its own separate plan if/when the control group goes away. That way each has their own $250,000 threshold and EZ filing requirement. Assuming you can show less than $250,000 as an ending balance for A at 12/31/2023 and 12/31/2024 it shouldn't trigger a letter for a delinquent 2024 filing.

Thank you, that is correct! Relius eventually sent me the PDF on how to use it. What a sweet system. I hope others get some use out of it too. To reliably identify all plans with no Roth was a huge time saver!