Hi

The answer is most likely yes but I want to double check (brain is fried)

Joe and Mary are 50/50 owners of a partnership, both attorneys. They sponsor a DB plan

They are splitting and each will have their own new firms in 2024, again law firms and each will own 100% of their new companies.

They are also terminating the existing DB plan and will take their distributions.

Due to state legislation, they need to keep the old partnership open due to some shared client issues (let's leave it at that)

Mary wants to start a new DB under her new company.

I think the old DB plan distribution will offset the 415 limits under the new company, agree?

The subsidiary of a public company offers stock of the parent as an investment option in a 401(k) plan.  The subsidiary is sold to another company, but plan participants are allowed to keep their stock in the parent after the acquisition.  At what point in time does the stock of the former parent company no longer qualify as “company stock”?  Asking for a friend, of course.  Thanks!

Hi

Joe owns Company ABC

Mary is an IC and gets 1099 paid to Mary's Company XYZ from Joe's ABC

No relationship between Joe and Mary other than being siblings.

Mary has a 401k plan under XYZ and defers max - she gets a w-2 from her company XYZ

Joe has a 401k plan under ABC

Joe makes a contribution under ABC 401k plan for Mary and takes a deduction. Mary has no w-2 from ABC nor an employee.

How can this be corrected as Mary has w-2 income from ABC?

Thanks

This is the first time since we've been doing this MEP that a new company is joining mid-year.

MEP has the same eligibility for all member companies: immediate for deferrals, YOS/semi for SH/PS (I know - I've tried to get them to change).

New member company (company just created last week) is joining effective 6/1/24.  We expect them to be top heavy, so all those non-keys active on 12/31/24 will get 3% for TH minimum even though they are not eligible for any employer contributions... well, now that it's 2024, we can actually not do that per SECURE 2.0 (all employees will be otherwise excludable for 2024 since they were all hired in 2024).

But they want to be able to give the participants (including themselves) profit sharing for 2024.  As long as it is stated in the plan document and/or adopting resolution, is it OK to waive the eligibility requirements for anyone employed on 6/1/24?

Bonus question: since there is no short plan year, there would be no pro rating the limits for 2024 for this member company, right?

Thanks.

BenefitsLink neighbors, what do you think about this not-repaid loan story?

On February 13, 2023, the participant took a $10,000 loan.

The participant received the check and the promissory note, showing that her first payment was due on April 7, 2023.

The recordkeeper sent the loan file. The employer admits it erred in not uploading the loan file to payroll’s systems.

No loan repayment was taken from the participant’s wages.

On August 14, 2023, the recordkeeper sent the participant a letter informing her that, if she does not pay, her loan will default. The participant does not admit she received this letter. Yet, the address is the same address to which the $10,000 check was sent, and, one assumes, received—because the check was deposited.

The recordkeeper’s record shows the participant loan defaulted on September 29, 2023.

In early 2024, the participant received a Form 1099-R, reporting the unpaid loan.

The participant is 62, and works part-time. The plan treats the participant as not severed from employment. The plan does not provide a distribution on age 59½. The plan provides none of the SECURE 2019 or SECURE 2022 early distributions. The participant is ineligible for any further loan.

The participant asserts she has no computer. That includes lacking a mobile device beyond an old flip phone.

The participant asserts that she never looks at her pay confirmations.

The participant asserts that she was unaware of any problem about the loan until she received the Form 1099-R report.

The participant complains that she lacks money to pay even her Federal income tax (there is no State income tax) on the extra $10,000 income.

If the plan’s administrator (a committee of the employer) believes the participant’s statement that she did not notice any problem about the loan until she received the Form 1099-R, should the administrator direct the recordkeeper and trustee to reverse the loan default?

An individual owned his own business as a sole prop for 5+ years.  No employees.  No retirement plan.

Within the past year, he switched to an LLC.  I'm not sure if he has a new EIN or not.

He also hired an employee after the LLC was created.

He would like to start a SEP, but would like to keep the new employee out, at least for a few years per SEP eligibility.  

But can he be immediately eligible taking account of his sole prop service?  Can a SEP count prior service with, in this case, the predecessor business entity?

Thank you

Hello- Looking for some guidance here as i cannot seem to find the answer. If an ineligible employee (NHCE) defers for a Plan year and the Plan Sponsor  allows them to keep deferrals in Plan via a retroactive amendment - would this ineligible employee ( an NHCE) also receive the Safe Harbor 3% and/or profit sharing?  Or would they essentially only be allowed to defer and receive a Top Heavy? 

I just applied for a TIN for a 401k plan than with an effective date of 1/1/2020.  The plan did not previously have a TIN.  There was one participant, the owner, with a brokerage account.  They plan will have 2 more owner participants in 2024.  I took over the plan from a prior TPA and applied for the TIN online. 

The confirmation letter says "Based on the information received from you, you must file the following forms by the dates shown:  Form 945, 3/19/2024. After our review of your information, we have determined that you have not filed tax returns for the above mentioned tax period(s) dating as far back as 2021.  Please file your returns(s) by 4/3/2024."

WHAT?!?!  This plan has never had a distribution and no withholding required.  What did I do wrong?  Did I get this guy in trouble?  His personal and business taxes are all ok.  Help please!!!

Let’s say company A is a related and participating employer in Plan X which is a safe harbor plan with the basic match formula.  Company A is purchased mid 2024 in an asset sale so all employees will be terminated from Company A. They have a distributable event. If the buyer has their own 401k plan that is not safe harbor, are there any spin off options mid year for that portion of Company X plan that is attributable to employees of A? Do we have safe harbor  concerns where we should suggest a spin off as of end of plan year in order to not violate 2024 safe harbor status.
Thank you for any comments!

We have a Cash Balance Plan that is terminating in 2024.  I believe we still need to complete the Cycle 3 restatement document, since we are already in the window, but I just wanted to confirm.

Thanks in advance!

Hello all, 

Thank you in advance for reading my post and sharing any thoughts on what seems like a strange situation we find ourselves in.  We have a small S-Corp with a 50+ year history and have offered a SIMPLE plan to our employees for over 10 years.  This was at Fidelity for most of that time, but mid-2023 they cancelled our plan and would not accept any additional deposits.  We asked what we did wrong or why we would be cancelled and got no answer. 

During the 5 months it took to setup an account at Schwab, the business withheld the funds for employees that were earmarked for Simple contributions.  This was done with each employee's written approval.

In Feb-2024 we finally got Schwab all setup and employees established accounts.  We were able to send the 5 months of back contributions, and current payroll cycle, and now we have received another plan-cancellation letter.  In reaching to Schwab, again no reason provided.  

We are at a loss about what the issue is, but we appear to be on some type of "black-list" that plan administrators don't want as customers, but we have no idea how to move forward.

Does anyone have any suggestions on what could be causing this?  

Is there any other way our business can help our employees fund their retirement.  We went the Simple route since it was low cost to setup and manage.  Are there other types of plans we should explore, or are their retirement consultant agencies that might be retained to get answers from Fidelity / Schwab on what this issue is.

Thank you again for your thoughts,

Rick

If a client is paying out of pocket (not from plan assets) for a whole life policy, but for some reason has named the plan as primary beneficiary of the policy, is the plan entitled to the cash surrender value?  Do any loans from the policy need to be reported?  I've seen plans buy life insurance before but never have seen someone buy life insurance and name the plan so I'm not sure what the reporting requirements are.  

This has probably been asked previously, but I can not locate.

This concerns a sole proprietor that maintains a 401(k)/PSP for the benefit of his company.

Of the net income derived from the sole proprietorship, stepping aside the calculation of any profit sharing for the non-owners, how can one determine what the owner's deferrals are (if there are any), vs if the contribution is to be considered an employer contribution (profit sharing)?

Why am I thinking that unless the sole proprietor makes an election, prior to 12/31, the contribution must be considered an employer contribution??

Any other references or thoughts on this subject?

In the past 2 weeks 2 clients have received plan audit notices.  Thankfully they are only PS plans, nothing more. But get this....I just received a call from the 2nd client who got the audit notice.   He is in the hospital following a blind fall down the stairs in the dark in the middle of the night.  He is in rehab with a concussion, 2 fractured vertebrae, and cracked ribs.  Poor guy, he just retired last month! 80 years old! 

So he called the agent conducting the audit explained the situation and  requested the audit be postponed and the agent said no!  He said to give someone power of attorney.  Is it unreasonable to request the audit be postponed?  Is this normal that the IRS would not grant a postponement based on these circumstances?

Is there a reason we have to abide by the 25% DC Comp deductibility limit when the plan is a 403(b) and the sponsor is a church which does not pay taxes?

Thanks!

Patricia Neal Jensen, JD, SME

FuturePlan by Ascensus

Patricia.Jensen@FuturePlan.com

We have a business with only one eligible employee other than the owner. . For 2022 this employees was fully covered by the 3% nonelective safe harbor and profit sharing.  For 2023, the person worked about 50 hours and earned $1,000 and terminated before the end of 2023.  So the employee will get the safe harbor.  What about the rule - if terminated and less than 501 hours can be excluded from coverage testing?   The question is profit sharing.  The owner is getting high PS%.  I know PS for this employee is miniscule.  Still for my own knowledge, what is the rule here?  I know if  I put this into our admin system it will say fail 401(a)(4).  So the term with <501 hours apparently does not apply to 401(a)(4).  That's fine.  I just wanted to nail down this rule.  It could be more meaningful rule in a larger plan to exempt this one person from 401(b) but still be able to pass 401(a)(4) due to all the other employees receiving PS.

Thanks

Retired participant had reached RBD in the later 20-teens and began taking RMDs on schedule. He passed away in 2021 and his wife elected to leave the funds in an account in the plan in her name until she could decide what to do with them. As she was not yet RMD age, she did not take RMDS in '21, '22, and 23. She is now 73 years of age and wants to roll her funds out of the plan into an IRA. 

We're of two minds on exactly which RMDs are missed. On one side, it is argued that only '21 is missed, as since he was in pay status that year's RMD should have still come out, and she'll need one '24 since she is now of RMD age. On the other side, it is argued that '21, '22, and '23 were all missed, as since he was in pay status at the time of his death in 2021.

Anyone feel particularly strongly about either side? The Plan Document does not appear to provide a definite answer to this specific situation.

My father was a state employee and participant in a 457(b) plan. When he passed away my sister and I were named beneficiaries. We each inherited 50% of our father's account. I rolled my account over to Vanguard. My sister kept her account with the plan. We both received RMDs each year due to my father's age. The plan proactively asked my sister for a beneficiary designation. My sister responded and named me as her beneficiary. On every quarterly statement my sister received I was listed as her beneficiary. Unfortunately, my sister passed away. She was never married and without children. She was ill for a number of years before she passed. I was her caregiver.

My sister has a will and a living trust. She also has a document that lists accounts where I was listed as her beneficiary. Her inherited 457(b) account is on that list and I am listed as her beneficiary. When I called the plan to notify them of my sister's passing the plan confirmed on multiple recorded calls that my sister named me as her beneficiary and the plan accepted her beneficiary designation. Again, her beneficiary designation appears on every quarterly statement. I had planned to roll this account over to Vanguard. I called the plan with a couple of questions about the withdrawal form. The form is a mess (I have since learned that the withdrawal form doesn't conform with the terms of the plan document.) A supervisor called to respond to my questions about the withdrawal form and told me that the plan doesn't allow for a beneficiary to name a beneficiary. The terms of the plan state that a lump sum will be paid to my sister's estate. I was upset by this new info from the plan. 

How can anyone do any meaningful estate planning if the plan accepts a beneficiary designation that it won't honor? I reminded the plan that my sister had passed away. The time to correct the plan's error was before she had passed so that my sister could've acted on the information the plan provided. My sister was aware of the benefits of tax deferred money. She could've rolled the account over to an inherited 401(k) outside of the plan to preserve the tax deferred status of the account and also name me as her beneficiary.  My sister reasonably relied on the information she received from the plan when they solicited her beneficiary designation and published it on her statements. The plans errors led to this issue.

The plan is pointing to the plan document which they interpret to prohibit a beneficiary from naming a beneficiary. I never submitted a formal claim. I asked questions about the claim process via phone and email. Even though I never completed the withdrawal form nor did I submit a death certificate (the plan states a certified death certificate is required to make a claim on an account over $100k), the plan sent me a denial letter and directed me to communicate with one plan employee. The employee has not responded to my email messages since I've received the denial letter. The denial letter states, "any costs incurred by the plan in defending a legal action related to this claim shall be charged to the Benificiary's remaining funds, to the extent permitted by the law." However, the plan document states, "No Reversion. The Plan shall have no right, title or interest in the assets of the Trust. No part of the assets of the Trust at any time shall revert to or be paid to the Plan, directly or indirectly." 

Does anyone have any advice? My sister intended for me to be able to maintain this account in a tax deferred status. Instead, the plan says it will make a lump sum payment to my sister's estate. I believe the plan's errors led to this issue. In my eyes as a layperson, the denial letter they sent and the plan document are carelessly written. 

I know it has been discussed on many occasions before and I have searched through the prior threads.  But I can't make sense of some elements so I decided to post.  We know that one cannot use Form 5305 SEP if "Currently maintain any other qualified retirement plan. This does not prevent you from maintaining another SEP." 

Q1:  Can anyone explain the logic behind these instructions or give a reference to the legislative history/sections of the Code which resulted in such?

Q2: These instructions clearly indicate you cannot establish the SEP if DB exists but why do practitioners decide it is prohibited to establish a DB plan if SEP already existed? 

Q3: What is the meaning of the word maintain" in this context?  Is it in the context of "existing" or "deduction"?  In other words, is it OK to establish a new DB Plan in 2024 effective for 2023 (when SEP existed) but not take any deductions for contributions made to DB Plan for 2023?

Q4: What are the ramifications if a taxpayer ends up having SEP and DB Plan for 2023 (with no deduction is taken for DB contributions for 2023 tax year)?  What exactly is the nature of the failure and what are the penalties?

Question, Plan is terminating and there is a participant who has an existing loan.  In my experience they have two options:

1) Pay the loan back in full
2) Default on the loan

Someone is asking if they have the option to repay the loan back to their IRA, assuming they are rolling their balance into an IRA.  I know what my gut is telling me, but I just wanted to make sure this isn't a viable option.

Thanks in advance!