Did anyone else see this?! Maybe I'm late to the party!

https://www.irs.gov/instructions/i8881

The way the $1,000 cap and yearly phase out is being applied is different than I understood. In a good way!

For a small employer(less than 50), if its year 5, and they have given everyone (let's say there are 50) who would be credit eligible individual employer contributions of $4,000, say $200,000 total, then the credit would be $50,000, with the remainder as a deduction for $150,000. That's awesome! 

My prior (incorrect) understanding was that the $1,000 cap was applied first, before any phase downs / phase outs. Sounds like that is not the case! I would have though for my example only $12,500 would be the credit. The way I am reading the instructions it would be the $50,000. Anyone else agree? disagree? 

HCE was a W2 employee for the first 4 months in 2023 then became an independant contractor paid via a 1099 (legitimately).   Would they be on the adp test in 2023 with their W2 comp and contributions?

TYIA!   

Husband and Wife were considered control group under pre-secure 2.0 due to both minor child and community property state. They would meet the non-involvement in each others business and are no longer CG as of 1/1/2024. At least that is my understanding.

They both sponsored a single DB through 12/31/2023.

Wife would like to discontinue her participation in the Plan and execute a rollover distribution to IRA (with spousal consent).

Wife will continue business, though income for 2023 was $0 and no W-2 was paid to wife's corp.

Husband is sole employee of husband's sole-prop, Wife is sole employee of wife's corp and is 100% owner of wife's corp.

Can she terminate participation in DB Plan and effect a rollover? Plan is well funded.

Does she need to spin off to a new DB plan in wife corp name and then terminate?

My understanding is she in not terminating service which would make things easier, the business is just currently not profitable.

Wife is too young for in-service distribution and does not meet definition of NRA.

Alternatively can her corp end participation in the DB Plan but she remain a terminated vested participant in the the Plan?

If she remains a terminated vested participant in the Plan, would the Plan now require PBGC coverage?

Has anyone reviewed how the 410(b) transition applies to plans dropping out of CG status due to secure 2.0 change?

When terminating a 401k plan, I confused about when a Notice to Interested Parties is required. Is a Notice required a certain number of days before Form 5310 filed? Or is a Notice required a certain number of days before the Plan is actually amended to terminate? We have adopted a Board Resolution to terminate later in the year. However, we want to file Form 5310 now. So I wasn't sure if a Notice needed to be sent to participants before the 5310 filing or if that Notice can be done in several months, which would be closer to the actual Plan termination date.

Thanks.

Hey there. I have a plan failing coverage. So, I'd like to start pulling in ineligible employees, but I'm stuck on which to add. I don't have any more active employees I can add, so I'm looking at termed EEs. My document says the following:

The problem is, all of the EEs had the same number of hours & termed on the same day (part of the business was sold off). 

Can I start bringing them in based on lowest wages? 

We have a retiring executive in our NQ Plan (subject to 409A) and we have no record of his distribution election.  We know how much we owe him, just not the time and form of payment.

We don't want to allow the executive to make a new election now, for obvious reasons.  Our solution is to pay under the Plan's default rules.  We know this is not perfect, but we don't have another option.  In addition, we are going to allow the participant (if he wants to) to sign an affidavit that confirms (1) my actual election was _____, (2) that election was made timely under the 409A rules (i.e. prior to the year the amount in question was deferred), and (3) in the even the IRS finds this affidavit (and payment thereunder) violates 409A, the company is not responsible for any adverse tax effects.

Obviously, this is a bad situation and no solution is perfect.  Has anyone else run into this and/or do you have a better solution?

I'm looking at a 457(b) document and adoption agreement specifying that payments must commence no later than April 1 following date of termination. Obviously done back when that was the required beginning date.

I just want to confirm - for a 457(b) plan, I assume it is still ok to retain this provision, (if they want to) even if RMD date for active participants is the new 72 or 73, depending upon DOB?

I inquire if hardship distributions may occur from rollover accounts and/or Roth rollover accounts. Also, I inquire if hardship distributions may proceed from discretionary contributions. 

§ 401(k)(14):

26 USC 401: Qualified pension, profit-sharing, and stock bonus plans (house.gov)

(14) Special rules relating to hardship withdrawals
For purposes of paragraph (2)(B)(i)(IV)-

(A) Amounts which may be withdrawn
The following amounts may be distributed upon hardship of the employee:

(i) Contributions to a profit-sharing or stock bonus plan to which section 402(e)(3) applies.

(ii) Qualified nonelective contributions (as defined in subsection (m)(4)(C)).

(iii) Qualified matching contributions described in paragraph (3)(D)(ii)(I).

(iv) Earnings on any contributions described in clause (i), (ii), or (iii).

§ 402(e)(3)

https://uscode.house.gov/view.xhtml?req=(title:26 section:402 edition:prelim) OR (granuleid:USC-prelim-title26-section402)&f=treesort&edition=prelim&num=0&jumpTo=true#substructure-location_e_3

(3) Cash or deferred arrangements
For purposes of this title, contributions made by an employer on behalf of an employee to a trust which is a part of a qualified cash or deferred arrangement (as defined in section 401(k)(2)) or which is part of a salary reduction agreement under section 403(b) shall not be treated as distributed or made available to the employee nor as contributions made to the trust by the employee merely because the arrangement includes provisions under which the employee has an election whether the contribution will be made to the trust or received by the employee in cash.

I've been asked a question that I don't think is black and white but certainly smells funny if not outright bad.

Start-up payroll/TPA companies appear to be offering free payroll services to companies that move their 401(k) plans to their TPA arms. Is this a fiduciary breach by the plan sponsor? Maybe, or with certainty?

If the primary (any?) decision criteria to move the plan is the unrelated benefit to the plan sponsor and not solely in the best interest of plan participants, then that is clearly a breach, is it not?

But does the mere appearance of a conflict of interest (and breach) mean that there is one? Would a participant even know? Would this even be discoverable upon a routine audit? Or are these types of arrangements littering the skies flying under the radar without scrutiny?

I remember reading either something similar a few years back, where some economic benefit is offered to the employer if plan administration is moved, and thought the opinion or consensus then was it didn't pass the smell test.

Thoughts and opinions please.

ERISA § 206(d)(3)(A) provides: “Each pension plan shall provide for the payment of benefits in accordance with the applicable requirements of any qualified domestic relations order.”

Even for a plan that is ERISA-governed, the quoted sentence about recognizing a QDRO does not apply to “a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees[.]” ERISA § 201(2).

BenefitsLink neighbors, in your experience how likely is it that an unfunded deferred compensation plan omits provisions for following a domestic relations order?

What legal, plan-design, and other reasons motivate an employer to omit QDRO provisions?

What legal, plan-design, and other reasons might motivate an employer, despite the absence of a public law command, to include QDRO provisions (within what tax law permits without defeating the plan’s tax treatment)?

What practical difficulties do employers and plan administrators encounter?

I know the option to rollover 529 account funds to a Roth IRA takes effect beginning IN 2024.  And can only be rolled over up to the Roth IRA contribution limits (i.e., $6,500 for 2023 and $7,000 for 2024).

Is the deadline to rollover the 2023 $6,500 contribution limit 4/15/24 -- or 12/31/23?

Is the deadline to rollover the 2024 $7,000 contribution limit 4/15/25 -- or 12/31/24?

Wondering if I can rollover both the 2023 max and 2024 max IN 2024 ($13,500).  Or only the 2024 max of $7,000.

I assume there is no clarification on this yet?

Plan year end was 6-30-23, so 5500-SF was due January 31 2024.
Plan was being audited for prior year, so they neglected to file before Jan 31 due date.
Now its 20 days into February. Can the return be filed electronically, although late, with reasonable cause explanation?
Or [when compared to $250 per day] is it safer just doing DFVCP for $750?  

Thanks

So, I'm not a CPA, and I wondered if this statement from a client's CPA makes sense, where there are two or more Schedule k-1's, but not a CG/ASG, and there are no participating employers? To me it seems odd, but perhaps it is perfectly normal:

The K-1 from that (other LLC) will have a substantial effect on his K-1 from (XXXX), but it won't change his earned income from (XXXX). His 2023 self-employment income from (XXXX) is expected to be ($$$$$) prior to employer contributions and reduction for self-employment taxes.

Here is a new one for me.

Told the active client RMD was 3k/month for 9 months (first year) but took 10.

There is no in-service allowed under the plan document.

Is this something that can be corrected under SCP?

There was no withholding nor spouse consent done as I just found out and was never told about this.

I know it is a small amount but I still want to make sure all ducks are in a row.

Thanks

So, the wording in IRS Notice 2004-2, Q&A L-2, and similarly in Q&A L-9, seem to contemplate the taxable year when "allocated" in a different manner than the normal interpretation of "allocation" for valuation, deduction, and 415 purposes. In this case, "allocation" seems to be synonymous with "deposited" or "contributed." Which makes sense - since it has to be reported on a 1099, how could it be done otherwise if the employer went on extension, and the employer contribution wasn't made until September, for example? Any other thoughts on this?

Q. L-2: If an employee designates a matching contribution or nonelective contribution as a Roth contribution, for which taxable year is that designated Roth matching contribution or designated Roth nonelective contribution includible in the individual’s gross income?

A. L-2: A designated Roth matching contribution or designated Roth nonelective contribution is includible in an individual’s gross income for the taxable year in which the contribution is allocated to the individual’s account. The preceding sentence applies even if the designated Roth matching contribution or designated Roth nonelective contribution is deemed to have been made on the last day of the prior taxable year of the employer under section 404(a)(6) of the Code.

Suppose you have a traditional 401(k) plan with about 20 participants.

The plan document specifically states that salary deferral contributions in excess of 40% of Compensation are not permitted.

In 2023 they had a participant with lower salary that funded salary deferrals of 70% of compensation.

Since this is a violation of the plan I would think the extra 30% needs to be removed from the plan and refunded to the participant.

Would the full 70% be included in the ADP test? I would think not because the plan specifically prohibits salary deferrals in excess of 40%.

Does anyone agree / disagree?

Thanks.

Have a real saver of an employee who has no ownership in the company sponsoring the 401(k) plan that she is a participant in.

This is a valued employee so she is an HCE. She has a substantial amount in an IRA and was thinking of rolling her IRA into the 401(k) plan to avoid having to take RMDs. She is currently 69 and is looking ahead. Anything wrong with rolling over the IRA now with the idea that she will not need to take RMDs until she actually retires, which she claims will be at least 10 years?

Thanks.

Hi. Under our cash balance plan, a contribution doesn’t receive interest until February of the following plan year.  For example, a 2023 contribution will start to receive interest credit in February of 2024.  We would like to amend the plan to eliminate the 1 month delay and have contributions receive the interest credit starting on January 1 of the following plan year.  Would it be permissible to make this amendment retroactively effective to January 1, 2024? 

Thanks.

Participant terminated employment in 2022.

Employer did not make the 2022 contribution until 9/2023 (terminated participant did not receive her contribution)

I revised the 2022 valuation to include terminated participants share of the 2022 contribution, plus share of 2023 earnings.

It is now 2024, participant wants a cash distribution.

I understand that 20% must be withheld from distribution.

Do I use 2023 945 to forward taxes to IRS or wait for the 2024 forms. Is it too late to do 2023 1099R?

Or is there another way to handle this situation.

Thank you for your help

I've seen conflicting things on this.  Is it 100% known yet whether or not this administrative horror show is mandatory or optional?