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Sounds like you are confusing withholding with taxation. There are several different distribution scenarios, but consider the following, which is the most common situation. Taxable distributions from a 401(k), if they are "eligible rollover distributions," have MANDATORY 20% federal income tax withholding. Withholding just means it is sent to the IRS, and when you file your income tax return, this withholding is applied to the income tax owed. This means that you will either owe the IRS less in a tax payment, or receive a larger refund. For sake of simplicity, assume you have taxable income, after all deductions, credits, etc., of 100,000, which INCLUDES your 401(k) withdrawal of 20,000. 20% mandatory withholding of 4,000 was sent to the IRS. Further assume that we ignore progressive income tax brackets, and your federal tax bracket for all income is 28%. Finally, assume you had 10,000 in federal income tax withholding on your other taxable income. So, total federal income tax owed is 28,000. You have had 14,000 already withheld, so you owe the IRS 14,000. If you had NOT had the 20% withholding on the 20,000 401(K) distribution, you would owe the IRS 18,000. Conversely, let's say you had 28,000 withheld from your taxable income not counting the 4,000 withholding on the 401(k) distribution, so you have had a total of 32,000 withheld in federal income tax. Since you have had a total of 32,000 withheld, you now get a tax refund of 4,000. This is a gross oversimplification to help illustrate the point. You are not having double taxation on the 401k) withdrawal.

Even if the plan document allows a distribution, the distribution could be restricted by the plan's funded status under sec. 436, and if the participant taking the distribution is an HCE, 1.401(a)(4)-5(b). If the participant is at or near their 415 limit (or will be in the future), be aware of issues that can occur when there are multiple annuity starting dates. The distribution taken now still counts against the eventual 415 limit at retirement.

see the IRS's page on what happens when a plan has no contributions. https://www.irs.gov/retirement-plans/no-contributions-to-your-profit-sharing-401-k-plan-for-a-while-complete-discontinuance-of-contributions-and-what-you-need-to-know I think if a plan was set-up knowing there would never be contributions - there would be an argument that it was never a qualified plan to begin with, which would put the assets tax deferred status at risk.

1. what is the point of a 401(k) plan with no contributions? at some point it would be deemed terminated and pointless 2. The employees would likely need to be covered by the 401(k) - if they have enough service they would be in the testing and testing would fail if they aren't offered the plan 3. A solo k is a regular 401(k). Solo k is a marketing term and personally I find it irritating. So all the regular compliance applies even if marketed as a "solok) 4. What investments aren't available in a regular IRA? I'm guessing this person wants a loan, or to purchase company stock. Those are the only two I regularly see available in a 401(k) but not easily in an IRA. Neither of which are great ideas either. If the investments are available in a different IRA format, they should stick to that, and not start a 401(k).

No (restriction on other plans at the same time as the SIMPLE). But why not roll the SIMPLE funds to "anywhere" else besides that IRA if he wants better choices?

You don't need a 60 day notice, just 30 days for a SH plan and no time frame for a non-safe harbor plan but we try to do 15 days at least. You will need to give notice for starting the SIMPLE. At this point, I would terminate the 401(k) 12/31/2023, pay it out in 2024 and start the SIMPLE 1/1/2024.

Good points - thanks. I can see perhaps doing them one by one electronically could be time consuming as opposed to printing a batch and mailing. But I was never comfortable with the mailing even though we did certified with return receipt both from the post office and the IRS. It's worked.

Here is the link to the IRS website: https://www.irs.gov/retirement-plans/form-5500-corner#collapseCollapsible1699465613274 Essentially, the IRS is saying EFAST2 will be open for business for plans to file the 5558 electronically. There is no association between the availability of filing electronically and the plan year. Note that there is no ability to batch filings for a group of clients, so an electronic filing will be submitted for each plan. Also note that "Form 5558 is no longer used to apply for an extension of time to file Form 5330, Return of Excise Taxes Related to Employee Benefit Plans. You can, instead, use Form 8868, Application for Extension of Time To File an Exempt Organization Return or Excise Taxes Related to Employee Benefit Plans, to apply for an extension of time to -file Form 5330."

Keep in mind that there are categories of employees that can be excluded from the count of the number of employees. For example, you can exclude anyone who : did not reach age 21 by the end of the determination year, did not complete 6 months of service during the determination year. This typically involves employees where the time between the hire date and termination date is less that 6 months (e.g., hired later in the year prior to the determination year and terminated early in the determination year, or hired in the second half of the determination year), is not regularly scheduled to work more than 17.5 hours per week, normally did not work more that 6 months in any year of their employment, is in a union and excludable from the plan, or is a non-resident alien and exlcudable from the plan. These exclusions are optional and could reduce the count of 37 to a lower number, particularly if you round down. Keep in mind that the owners means more-than-5% owners in the event there are owners with 5% or less ownership. Most importantly, keep in mind that the top-paid group election must be elected in the plan document.

The second of those - all the owners AND all the top 8. (Or 7, you can round either way on the 20% calculation as long as you're consistent in the way you do it.)

To add what Corey very clearly stated: If the employee(s) are not owners, it is not up to them to be included/excluded unless the document provides a one irrevocable election for not participating. Be careful though, it means nothing as they will be included in all testing. Also, some employers negotiate a payment package with their prospective employees who are not owners. I personally frown upon on this but there are some out there state that it is ok as part of payment package. In essence you are asking the employee to fund their own pension plan, hmmmmm. There is also a big difference between electing not to participate and electing not to contribute. Assuming to are referring to owners/partners, electing not to participate is fine but electing not to contribute when you are already a participant, may not fly here. This can be a big issue in a partnership. This is not a 401k election you are referring to here, you have to be very careful what and if you allow the client to do. Be very careful with your wording, if I may suggest. Either you are in or excluded categorically. another 2 cents of mine.

The requirement for the 60-day notice of intent to terminate is found under ERISA sec. 4041(a)(2). This section only applies to plans subject to Title IV, in other words, PBGC-covered DB plans.

A corrective amendment under 1.401(a)(26)-7(c) is subject to the same requirements as a corrective amendment under 1.401(a)(4)-11(g)—in particular, the amendment must satisfy coverage and nondiscrimination testing on its own. If the individual(s) you are looking to bring in to the plan under the amendment is/are HCE, and the employer has any non-excludable non-HCEs, the amendment would not be allowed. The same is true if you are looking to satisfy the meaningful benefit portion of the test by increasing an HCE who is already benefiting at a lower level—you could not increase them on their own without also benefiting some non-HCEs. Note this is only true for a corrective amendment adopted after the end of the year. Assuming a calendar year plan, it is currently too late to fix under -7(c) for 2022, but if you are looking at 2023, then you could expand the group of participating employees in any way you like before the end of the year without the additional restrictions of -11(g). In addition, although there is currently some ambiguity around when this becomes effective, you will (eventually) be able to adopt an amendment retroactively to fix this under 401(b)(3) (as added by SECURE 2.0 sec. 316) without the additional restrictions of -11(g). One last thing—does your plan document include a 401(a)(26) fail-safe? If so, follow its terms before you start looking at corrective amendments.

Careful here - what happens if the employee (presumably these employees are partners or otherwise individuals significantly contributing to the production of the business) chooses not to participate or chooses a smaller contribution? Do they get that amount in cash (or in the case of a partner, earned income) instead? In other words, does making an election to receive a contribution result in a corresponding reduction in their compensation (and if it doesn't, why would anyone choose not to participate or choose a contribution level less than the maximum legal limit)? This sort of arrangement could result in a deemed CODA, and could disqualify the DB plan.

Per Bill's response, 1.401(k)-3(e)(4)(i) requires, among other things, advance notice when terminating a safe-harbor plan mid-year. Note that this is purely a safe-harbor rule that must be met in order to retain the safe harbor during the short plan year in which the plan terminates; it's not an across-the-board 401(k) rule. Conversely, 1.401(k)-3(e)(4)(ii) allows a safe-harbor plan to be terminated mid-year in connection with a corporate transaction without adding the notice rule. It doesn't say that notice doesn't have to be provided; it just says the plan can be terminated mid-year (keeping the safe harbor) in connection with a corporate transaction. The notice of intent to terminate rules copied above address DB plans, but the IRS website doesn't seem to get into that level of detail.

it is a smaller of 50 participants or 40% of employees but no less than 2 people (unless 1 owner).