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If the amount was distributed in 2024 then it is taxable in 2024. Sorry to say, but waiting until the last minute caused this individual to miss their RMD for 2023. Play stupid games, win stupid prizes. At least the missed RMD was timely corrected and the excise tax is reduced to 10% under the new SECURE 2.0 rule. They could also request a waiver of the excise tax on Form 5329.

Yes, I remember the discussion. I think there are potential 415 and deduction issues as noted in the prior thread and there is a better way to accomplish (individual allocation groups). Also, if that is language modification to a pre-approved document and has not been submitted, you may not have reliance on opinion letter.

You need to amend the plan to prospectively suspend safe harbor contributions (date must be at least 30 days out), terminate the plan as of a certain date (not earlier than the date of suspension of the safe harbor contributions), and update the plan to comply with current law. You must give a notice of suspension of the safe harbor contribution to participants at least 30 days before the suspension of safe harbor contributions is effective. The owner will be required to make safe harbor contributions based on 2024 compensation until the date of suspension of the safe harbor contributions. Example: Adopt suspension and termination amendment on 1/15/24, effective 2/15/24. Give participants notice on 1/15/24, telling them safe harbor contributions are being suspended effective 2/15/24. Make 2024 safe harbor contributions for compensation through 2/15/24. There are best practices with regard to the language in the termination amendment, but those aren't different when you're terminating a safe harbor plan vs. a non-safe harbor plan.

If this was the first RMD due, then the participant had until April 2024. The year of taxation will still be in 2024, but there will be no penalty. If this was not the first RMD, then definitely the participant should have known better. It was not their first rodeo.

SKREEEEEEEEEEEEEKKKKKKKKKKKK! Fingernails on a chalkboard.

Here's a somewhat similar discussion that may be helpful. I'm not venturing any opinion.

I assume you also mean there is no Affiliated Services Group? If neither CG nor ASG, then I agree.

With no research or deep thought, my inclination, IF the current vested account balance exceeds $7,000 (assuming you switch to $7,000) while excluding rollovers, then the money stays in the plan. If less than $7,000, excluding rollovers, then force the distribution. Yes, there's a prior operational error, but it really is a no harm no foul situation - participants haven't lost anything. Clean it up using the appropriate rules going forward, and let bygones be bygones. Others may disagree.

I've decided that from my purely personal TPA viewpoint, SECURE/SECURE 2.0 are misnomers. I call it TERISA. (The Early Retirement Incentive Stupidity Act.) The timeframe keeps getting shorter...

You would be right, if the 5-year period had been met for the 401(k). But in this case, it hasn't , right? "Before he reached the 5 year aging rule he dies". That would mean the rollover is from a non-qualified distributions. In such cases, the entire rolled over amount is not basis. Instead, the rolled over amount is split - with the basis going into the basis bucket of the Roth IRA and the earnings going to the earnings bucket of the Roth IRA.

In additional to what EBP says above, you will also lose safe harbor status for the year unless you meet certain conditions - there is an IRS notice pr Rev Proc on this, I forget which one. I think the conditions to still be SH are one of operating at a economic loss, business transaction like merger or acquisition, or dissolution of the company but I haven't reviewed it in a while so double check. But if the Owner & his wife are the only eligible participants you won't have to worry about testing issues even if you lose SH status. Also if your current safe-harbor formula in the document excludes HCEs, or at least makes it optional for HCEs, you may have no contribution requirement. Both of the above assume the owner and his wife are the only eligible, and not just the only contributing 401(k).

All of our One Year of Service plans shift the computation period to the plan year, so for the most part we are dealing with just January 1 entry dates for LTPTs. I'm assuming non-auto enroll plans would still get to use the first 3 months of the plan year to find missed LTPTs and correct without a QNEC? One more reason for clients to get us their census data asap.

You can test those under 21 and 12 months on a contribution basis and I would think the 3% SH would be all you need in that group. The group over 21 and 1 YOS can be cross-tested and the NHCEs benefitting with any nonelective in that group will get at least the minimum gateway. I would think the system could easily do that. Otherwise perhaps look for the system instructions for restructuring or how to test using component plans

Also, for 403(b), try to avoid the 20 hour exclusion and all qualify for deferrals without regard to hours counting due to Universal Availability.

If you use the OEE group (under 21/1) to help the over 21/1 group pass testing on a benefits basis, then the NHCEs in the under 21/1 group must all get the gateway since they are all getting a nonelective. You can still component test, however, hopefully you have the right demographics to pass.

Did you try testing the under 1YOS group on a contributions basis? That group does not have to cross-test. What percent of pay is the son getting as a nonelective allocation?

Just be wary of the top heavy provisions, if applicable

Eligibility is not a protected benefit but you can grandfather it for folks who already met the old eligibility but not the new, or for folks employed as of a certain date. As long as it's not discriminatory, like bringing in the just the owners kid or a newly hire partner to the firm you have a lot of flexibility, it all depends on how the amendment language is drafted.

Agreed. Are they considering waiving that requirement for anyone employed on 1/1? I see that sometimes to catch the December people you describe and have it only apply to those hired after 1/1/2024.

A plain reading of 4975(f)(5) supports that you would use the actual rate of return: If the earnings determined by the DOL calculator are less that the plan would have earned had the contributions been deposited timely, then that would put the plan in a worse financial situation, and therefore the PT would not be corrected. However, I'm also aware of Rev. Rul. 2006-38 which notes: So I think you could argue it either way. Personally, I will usually calculate it both ways and use the larger one.