I have a 401(k) plan with a terminated participant who accrued all of her benefits in Florida and has maintained her account in the plan. She has since moved to Virginia and now wants to take distribution of her account balance. Here's the question: when she takes her distribution, her CPA thinks that she will have to pay Virginia State Income Tax on the monies she received from the plan. I don't believe that this is the case. Opinions?

Thanks,

Rick 

Client moves plan from national 401(k) vendor #1 to national 401(k) vendor #2.

Vendor #1 has a fee they charge when the plan leaves and Vendor #2 reimburses a portion of that fee and puts the $$ in the plan unallocated cash account directing the client that it can be used for reducing employer contributions or to pay fees. 

If the client paid the initial fee to vendor #1, can the client reimburse the company for the portion that vendor #2 put in the cash account?

Hi

Husband LLC (filing as an S-Corp and owned 100% by Husband)

Wife LLC (filing as a sole-prop)

Neither entity have employees. No ASG issues.

They have children under age 21

Setting up DC and CB plans for 2023. They are both adopting the plans.

Husband LLC will fund his own portion of the DC and CB and Wife LLC will fund her own portion of the DC and CB.

My understanding:

For 2023, they are a CG so can file as a single employer using 5500-EZ and also can use Schedule SB, correct?

For 2024, they are no longer CG as SECURE 2.0 removed the under age 21 issue based on 1563e (finally).

How do they need to file for 2024 and also do I need to use SB or MB? This is a first for me.

Thanks for your comments.

I had a solo 401(k) that had a plan termination date of 12/31/21. All assets were distributed as of 3/21/22. To avoid the successor rule, I waited more than 12 months before establishing a new plan. I signed the adoption agreement for a new 401(k) on 12/12/23 but, following guidance on the application to typically have an effective date as of the start of the plan year, I put an effective date of 1/1/23. I realize now that perhaps this effective date should have been 3/22/23 or later to be a full year after 3/21/22.

For purposes of the successor rule, does the effective date matter or just the adoption date? If the effective date is wrong, how can I proceed? File an amendment? Shut down and make a new one? There are no assets in the account yet.

Client plan excludes those "scheduled to work <1000 hours" which we know has to change.  They amended their plan effective 1/1/2021 for this change so they stopped enrolling that part-time class since 2021.  The plan's normal eligibility is 3-month wait with quarterly entry dates.  

If a part-time person was hired say March 1 2021, their 3-year anniversary would be 3/1/2024.  I assume they would enter the plan for deferrals assuming they completed 500 hours in each of their 3 anniversary years.  (There is no plan year shift since there is not a Year of Service eligibility requirement.)  

I think they should amend and eliminate the part-time class exclusion now to avoid missed eligibility.  They can still exclude LTPT from the match.  They included the part0teim exclusion back for 2021 to avoid the match for these people and to try to stay under 100 lives (They have been subject to audit since they so this is a non issue now.) Does that make sense to eliminate the class exclusion?

One last thing - I believe I read that this part-time exclusion needed to be amended out of plans by Jan 1, 2024 yet the SECURE amendments are not due until end of 2025.  Did I see that correctly?  Maybe the writer meant in practice, but not in document.

Thank you in advance for any comments!

Tom

Do I need to withhold 401k contributions  on a retention bonus after the employee terminates? The bonus is for staying until the sale was complete. The agreement states that we have 2 weeks to pay the bonus after the close of the sale (close of the sale= termination date in payroll).

We are amending a lot of plans to have 500 hours of service instead of 1,000 hours to avoid the LTPT rules. Vesting will remain at 1,000.  I want to be able to accumulate and track how many plan years a participant has 500 hours of service (so same approach as vesting, just with 500).   That's an easy way for us to review eligiblity for accuracy because we see for exaple who never hit 500 hours of service.

Anyone have a suggestion for which field to use for that?  The LTPT fields do not turn on unless the person is ineligible for the plan.  The "Service" figure on the "Service Tab" (so the first one) seems like my number one contender but it seems to impact the determination of otherwise excludables (it codes people as OE's too early).  Curious if others are thinking ahead on this or have other thoughts.

Non-safe harbor 401k plan (discretionary match) for non-profit is under DOL investigation because of a whistleblower report to DOL.   Deservedly so, they have late deposits going back to 2017.  They didn't have a TPA after the intial 2017 plan year.  Hard to believe, but it was unbeknownst to the board members - lots of turnover in board members and bookkeepers.  In any event, the employer is very cooperative and the DOL has been great to work with (so far).  I'm reporting the late deposits to the DOL and the investigator is going to calculate the lost earnings.  Facts:

• I filed the 2017, 2018, 2019 & 2020 with the DFVC program.  2021 and 2022 filed on time. Each year the form said that the employer did NOT fail to transmit participant contributions.  At the time, they thought only matching contributions were late.  Once full records were found (in a box in storage), we found that there were late employee contribution deposits.
• Now we know that every year from 2017-2022 has late employee deposits and never filed a 5330.
• DOL is going to calculate lost earnings after I report the amounts and pay periods to him  The DOL investigator said the match is discretionary and that late or non existent matching contributions for a pay period are not an operational failure as long as each employee's match in that particular payroll is using the same formula. I'll have to true up the match for a few of the payrolls.

QUESTIONS:

• Do they need to go through VCP with the IRS?  T Are late deposits a reason to do VCP?
• After the first TPA disappeared in 2018, they didn't have a document in place until i drafted one in July 2022.  Is that a VCP issue?
• Should I amend the 5500s to say there were late employer contribution deposits in each of those years?
• Form 5330 - I assume I need to file 5330s for those years.  I see there's possibly an additional 5% penalty for failing to file.  My problem is in looking at the 5330 I don't see that there's a category for failure to file for a LONG time.  The Sections all seem to refer to 'tax that is reported by the last day of the X month following Y year..."etc.  My situation doesn't seem to fit the categories.  What do I file?

I need lots of advice here.  This is the first time I've ever encountered a cluster like this.

Thank you for your help!

If a court does not specify who will pay for Survivor benefits in a divorce, how should a QDRO be drafted?

A new DB Plan is effective 1/1/2022 and is adopted 7/6/2023.  No prior qualified plans.  63 participants.  The majority owner is age 80, works full time, and is fully vested.  His normal retirement age is age 84 (the 5^th anniversary of his 1/1/2022 entry date.)  When is the owner’s required beginning date for his first RMD?

Thank you in advance for your input.

Michael P. Burkow, EA

 Available Monday through Thursday

 401k America, Inc.

(909) 591-1724 X. 418

michael@401kamerica.com

What are some exceptions that allow you to remove funds from your 457 Plan and can you remove your entire balance? I'm with Lincoln btw.

My ex-wife was awarded a portion of my Pension and 401k Balance over 20 years ago when were divorced. The QDROs were never filed, but I am just receiving a notice in the mail regarding a hold on my 401k account as a result of ex-wife submitting a draft DRO. My ex-wife was also entitled to "any benefits under Pension plan." Does that mean Survivorship and is it too late for her to filing these QDROs 20 years later?

 

A non-ERISA plan’s sponsor/employer/administrator found that its recordkeeper made a few years’ monthly ACH payments after the participant’s death but before either the administrator or its recordkeeper had notice of the death.

The payments were made under the participant’s instruction to use the recordkeeper’s service for automated payments of the amounts the recordkeeper computed as the participant’s § 401(a)(9) minimums.

The payments were made to a bank account for which the participant and her spouse were joint holders. But the nonparticipant spouse is not, and never was, the participant’s named beneficiary. Also, the plan provides no right to the spouse.

The plan’s trustee is a State-chartered trust company that is a subsidiary or affiliate of the recordkeeper. The payer is that trust company or its paying agent.

Am I right in thinking the payer should demand a return of (at least) the amounts the payee’s bank collected after that bank had notice of the payee’s death?

Is this a task recordkeepers routinely handle?

If not, will a trustee/recordkeeper do it on the plan administrator’s instruction?

Wondering if for the Solo type client people require their client to have a full annual administration performed.  If the assets are less than $250K is one necessary?  Maybe a modified type of administration?

What responsibility is it for the 3rd party FSA provider to process FSA claims correctly. Example if an employee sends in a claim and there is a possibilty the item or service is not eligible or my need more clarification, like a Dr's letter but it is paid out without asking for more clairification,  is it ok for a 3rd party provider to not looking into the expense furthur, like holding it for more info. And their thought process is ultimately its on the employee if they claim something and shouldn't have and it was reimbursed. Where is the line that the 3rd party FSA provider must hold a claim or servi e for more clarification to either reimburse or deny as not an eligible expense?

A 401(k) plan allows participants to convert their after-tax contributions to Roth via an in-plan Roth conversion feature. After a conversion, are those dollars completely recharacterized as Roth such that they would no longer be eligible for a penalty-free early withdrawal? For example, if a 50 year old participant had $7,000 in after-tax contributions, he would be able to withdraw them at any time without an early withdrawal penalty. If he converts them to Roth via the in-plan conversion, would he lose that ability to withdraw the funds before age 59.5? 

Under Federal Regs, I understand a governmental entity can make employer contributions to a 457(b) plan.  What I am unclear on is if the State of PA allows for this?  Anyone work on PA governmental where employer match or nonelective is permitted.  I realize Er and Ee would be subject to 402(g) limitation.  I've gotten various responses from attorneys.

Following is an excerpt from an online article prepared by a law firm.  Although it is outdated, I can confirm that they are still taking this position.  I understand it for sole-proprietors but not for others.  Have I missed something?  I appreciate the exepertise represented on this forum.

"Both employee [emphasis added] and employer contributions can be made up until the company’s tax return deadline including  extensions. If you have a sole proprietorship (e.g. single-member LLC or schedule C income) or C-Corporation, then the company tax return deadline is April 18th, 2022. If you have an S-Corporation or partnership LLC, the deadline for 2021 contributions is March 15th, 2022. Both deadlines (March 15th and April 18th) to make 2021 contributions may be extended another six months by filing an extension. This is a huge benefit for those that want to make 2021 contributions but who won’t have funds until later in the year to do so.

While employee [emphasis added] and employer contributions may be extended until the company tax return deadline, you will typically need to file a W-2 for your wages (e.g. an S-Corporation) by January 31st, 2022. The W-2 will include your wage income and any deduction for employee [emphasis added] retirement plan contributions will be reduced on the W-2 in box 12. As a result, you should make your employee [emphasis added] contributions (up to $19,500 for 2021) by January 31st, 2022 or you should at least determine the amount you plan to contribute so that you can file an accurate W-2 by January 31st, 2022. If you don’t have all or a portion of the funds you plan to contribute available by the time your W-2 is due, you can set the amount you plan to contribute to the 401(k) as an employee contribution, and will then need to make said contribution by the tax return deadline (including extensions)."

Does a plan sponsor have control over the fund(s) used for balances in their pre-funded account? Or is a pre-funded account required to use some sort of conservative capital-preservation type fund?

An employee goes on a leave of absence and chooses to continue having their HCFSA deduction taken from paid portion of leave but does not return to work. Does the HCFSA eligibility end as of the last day worked prior to the leave, or does it tie to the health insurance plan end date, which is last day of the month in which the employee notified us that they would not be returning to work? If eligibility ends as of the last day worked prior to the leave, how do you handle HCFSA reimbursements made while on leave?