Participant defers $20,000 in Roth and $18,500 in pretax for 2022.  Obviously, we are beyond the 4/15/2023 deadline.  

Does the participant have the option to tax the excess from Roth?  What were the tax consequences on the 2022 filing?  Did they have to claim the pretax as excess?  Which source is the better option to take the distribution from?

We became aware of a non-client plan sponsor who needs a 5500 audit for 2022.  This is not our TPA client.  The plan is bundled with ADP.  The plan sponsor contacted us for a plan audit.  The plan was small for 2021 but went well over 120 as of 01/01/2022.  The 5500 for 202 has not been filed.  ADP prepared the 5500 and I'm guessing takes the position - we posted it on our website and sent an email to the plan sponsor.  I've seen that before with another bundled provider.  And I realize plan sponsors need to be alert to deadlines as they are ultimately responsible.

My question is (and I've seen this before at webinars and didn't pay close attention because I didn't think it would ever apply to us) - should the 5500 be filed now without the audit report?  I'm told the audit will not be completed for a month.  I'd like to get the DFVC penalty paid before the IRS catches the late filing.  I'm surprised it hasn't already.

What do you think about filing the 5500 now without the audit report and amending a month later with the report?

Thank you,

Tom

An employer sponsors a 401(k) plan for their employees, plan year is 1/1 to 12/31. We'll call this Plan A. They spun-off a certain division of employees into a separate (new) plan on 9/1/2023. We'll call this Plan B. These individuals did NOT incur a termination of employment. 

When testing Plan A for 1/1/2023 to 12/31/2023, the spin-off individuals will be included, but it will only include their contributions from 1/1 to 8/31, correct? As for the compensation used on the test for Plan A (for the spin-off group), I think it is going to be dependent on the provisions of Plan A, and how it defines compensation for the ADP/ACP test. Would that be correct as well?

Depending on the plan's provisions - the compensation used for the spin-off group on the Plan A test could be from 1/1/2023 to 12/31/2023, or it could be from 1/1/2023 to 8/31/2023, if the plan excludes compensation while the participant is not an eligible employee (for Plan A). Thoughts?

I am narrowing my prior question. If a subsidiary/Participating Employer (PE) is participating in a single employer safe harbor plan via a participation agreement and the company is purchased mid-year in a Code Section 410(b)(6) transaction, what are there options to leave the safe harbor plan mid-year? Assume the buyer does not sponsor a safe harbor plan. I think one options is to spin out into their own mirror safe harbor plan, and this will keep safe harbor status for the PE and the former parent plan. Is there another option - such as can the PE cease participation in the safe harbor plan before the sale and allow a distributable event without the plan losing safe harbor status? Appreciate any comments!

If I was born on 4/11/1952, my first RMD is due 4/1/2025, am I correct?

Group:

Client is looking at selling 100% of his S Corp Stock to an ESOP with an adoption date of 12/31/23.

I'm told by cpa that operating Co/plan sponsor is on cash basis.

I've always thought that any retirement plan can be funded and set up and documents drafted for previous year if done by Sept 15th of following year or up until time of filing tax return. 

 

However, given 12/31/23 has passed how does the law allow an adoption date without backdating documents? I note 401ks do this all the time. 

Is there a treasury regulation that allows the back dating of documents to memorialize the sale to the esop? 

Thank you! 

Partner in a firm is asking to invest part of his retirement plan balance in real estate.

I've never been a fan of this, nor have I seen it in a non-owner only plan.

Participant is not eligible for an in-service distribution so is unable to move balance to an IRA to do this.

They understand it cannot be their primary residence, nor used for the company and plan to use it for rental income. They understand it must be fairly valued every year.

The real estate in question may or may not actually exist yet, as it may be at this time a down payment on a unit in a new development.

Plan already allows for self directed/brokerage accounts for all participants.

I feel like I'm just not thinking of relevant issues, I just have a queasy feeling about this.

Just wanna confirm - ineligible employee is receiving a refund of 401(k) for prior year.

As it is prior to 4/15 of the next year, they should treat the basis as income for the prior year, even though they won't actually receive the 1099-R (Code E) till after the end of the year of distribution.

The earnings on the ineligible contribution will receive a separate 1099-R and is taxable in year of distribution.

What legal consequences can arise from an invalid beneficiary designation in a retirement plan, and how can plan administrators handle the distribution of benefits in such cases to ensure fairness and compliance with regulations?

Participant's entry date is April 1 2023.  They start contributing June 1st 2023.  Client wants to have a plan provision that excludes comp prior to the first date they made any contributions. In the words of  Kramer, my reaction was "You just blew my mind."

I think this should be allowable (aside from the fact that my pre-approved document does not include this option, which I guess is a different matter on reliance, etc).

Thoughts?

Plan sponsor's calendar year, non-safe harbor 401(k) plan provided a fixed match of 50% of deferrals up to 8% of compensation in 2023.  Plan was amended effective 1/1/2024 to add a basic safe harbor match intended to satisfy ADP and ACP safe harbors.  Due to an apparent oversight, the fixed match was not removed when the safe harbor match was added.  Sponsor indicates its intent was to replace the fixed match with the safe harbor match, and to discontinue the non-safe harbor fixed match after 2023.

Can the non-safe harbor fixed match be removed mid-year without adversely affecting the plan’s safe harbor status?  If removed, would the fixed match nevertheless have to be funded at least through the date the amendment removing it is adopted, especially as there are no allocation conditions on the fixed match and the contribution presumably would already have accrued?

Even if removing the fixed match would not violate the rules governing mid-year changes to a safe harbor plan, would removing it prospectively for the balance of 2024 still leave the plan subject to ACP testing for the 2024 plan year (e.g., because the fixed formula is outside the ACP matching safe harbor)?

Plan sponsor terminated a previously frozen DB plan last year. All benefits were settled by the purchase of annuity contracts at that time. There were no active employees in the plan at the time of termination. 

The DB plan was overfunded and there is $180,000 excess amount left in the plan. Plan sponsor wants to transfer the excess amount to the Company's current 401(k) plan. My understanding is there is no clear guidance on whether the 401(k) plan would qualify as a Qualified Replacement Plan (QRP) when there were 0 active participants in the terminated DB plan at the time of termination. I'm interested in whether others agree or have different opinions on this?  

 

not sure if we are the only ones that do this, but if a plan funds their safe harbor match or even a discretionary match on a payroll basis what's the easiest way to check it at the end of the year :). We have relius calculate it for some of our plans each payroll (match report sent etc.). We don't need to check those...however there are some plans where the HR or payroll company calculates, and we try to double check at the end of the year. Right now, we check each person, every payroll which is time consuming especially for large plans. Wondering if there's an easier way to do it on relius?

What should a plan do with 401(k) loan overpayments?  Overpayments occurred due to an administrative error by the plan sponsor (they deducted one too many loan payments from a couple of participants' earnings and transmitted these amounts to the plan. Can these amounts be distributed from the plan back to the participants? Does the answer change if the overpayments were made in a prior plan year/tax year?

 

I think this is a softball question and I'm sure I will be told to look at the document.  A participant is 66.  She is ceasing her deferrals and the match will be up to date.  She will still be employed but wants to withdraw her full account and roll it into an IRA.   The rules state (right from the IRS page) - >

Generally, distributions of elective deferrals cannot be made until one of the following occurs:

• The participant dies, becomes disabled, or otherwise has a severance from employment.
• The plan terminates and no successor defined contribution plan is established or maintained by the employer.
• The participant reaches age 59½ or experiences a financial hardship.

Same rules apply to the SH Match.  So, sounds like she can take her $$... right?

I have a safe harbor 401k plan using the safe harbor basic match formula. This plan has a few related employers (subsidiaries) that are participating via Participation Agreements. It appears that a couple of these employers will be sold mid-year, via a stock sale/change in ownership rather than an asset sale. My understanding is that this will create safe harbor problems and the only way to maintain safe harbor status for the plan is for each entity to spin out into its own mirror safe harbor plan. If correct and assuming we do not want to create new plans, would an option be to terminate/suspend the safe harbor mid year and convert to ADP/ACP testing - the plan is to continue the same match as a non-safe harbor match. The reasoning is that is will be easier to remove the participating employers. And as FYI - based on our projected testing, the plan will pass ADP and ACP anyways. Any thoughts? Thank y ou!

I am doing some modelling trying to forecast the segment rates for 2024 EOY valuation.  I am getting 4.75/4.96/5.59 for 430 and 5.03/5.27/5.23 for 404.  Leaving the technicalities apart, thus my conclusion is that for 2024 the min and max are the same and are driven by 430 rates.  This is totally insane, what am I missing?

So, preapproved plan, you have to give the Opinion letter Serial #. Ours has the format Qxxxxxx with a small "a" after the 6 digits. The 5500 instructions do not appear to require inclusion of the "a" - has anyone heard otherwise?

I always assumed the "a" meant "approved" so maybe it is meaningless in the context of filing 5500's at this point?

Good morning, I hope all is well.  Has the IRS issued final guidance on putting in matching contributions as Roth as of yet?

If it's a Safe Harbor Match, does that impact the ability to do it as a Roth?

Thanks in advance!

I'll be honest, I don't have much experience in this area but I have someone asking me questions.  Someone wants to change their SEP to a Simple IRA.  Are there any issues with doing this and can they still contribute to the Simple IRA?