Plan A is a 401(k) with a SHNE contribution.

Participant A terminated in 2020 and returned to work for the same employer 12/3/2023 and client wants a cite that the SHNE must be made for this individual, who is now a participant as of his date of hire.

Are the contribution that qualify for the employer contribution portion of the Start-up contribution tax credit based on:

1. Contributions actually made during the tax year you are taking the credit for (2023 credit uses only eligible employer contribution actually paid prior to 12/31/2023)

2. Contributions applicable to the 2023 regardless of when they are paid. (Inclusion of contribution for 2023 that are either paid in 2023 or as a receivable payment in 2024)

The draft instructions for form 8881 which were just released this month would not seem to be clear.  The instructions use the language "made by an eligible employer for the first tax year during which the plan becomes effective with respect to the eligible employer and the succeeding 4 tax years." 

Can a new small employer claim the tax credit for qualified start-up costs in the first year of the company's existence?

Assume - Employer begins operation in 2023 (No employees prior to 1/1/2023)

Employer starts their new plan during 2023 and pays start-up costs for plan design, documents and plan installation during 2023

Can this employer take a start-up plan tax credit for 2023 for qualifying start-up costs?

Concern is that one of the requirements to take the credit for qualified start-up costs is that you have to use the number of employees of the employer who received at least $5,000 of compensation from the employer during the tax year preceding the first credit year.  A new employer has no preceding tax year to make this determination.

Would seem to be two options:

1. There is no credit available in the first year if a new employer establishes a new plan in its first year of existence.

2. For new employers you would use the current year to make the determination since there is no preceding year.

It would seem without some revision to the instructions or other guidance from the IRS that the credit would not be available for the first year.  This would not seem to be the intent of the law but how it should be applied based on how for form 8881 and instructions were drafted.

This post's inquiry entails if § 416 minimum contributions routinely have § 404(a)(3) limits waived. 

https://www.irs.gov/pub/irs-tege/epche903.pdf

I'm struggling to locate a copy or link for Bulletin 95-1.  Can anyone help?

In the case of an owner of multiple IRAs who was receiving RMDs from her IRA accounts before death, can the IRAs be aggregated after death, as allowed during lifetime, so as to permit payment of the total RMD amount for all the IRAs to be made from a single IRA account? 

We have a client who had an employee contribute $6,750 to their HSA and $800 into the FSA in 2023. The FSA contribution was meant to go into a limited purpose account, but they just learned that there was no limited purpose account set up, and the funds were coming from the full-purpose FSA.

Prior to this, they had a rule set up in their system, which prevented the enrollment. The only reason they allowed the election to pass was because they thought it was a limited purpose account.

We are currently working with the carrier to set up the limited purpose account so this will be corrected going forward.

The employer did instruct the employee at the time that the FSA was to be used for dental and vision only. How should we advise the client for what occurred in 2023?

We're taking over a plan with deferrals and SHM only, and the sponsor is refusing to provide us with the SSN of participants who are not deferring.  They initially didn't want to give us ANY data on them, saying that we didn't need it (sigh), but they are really digging their heels in with the SSNs.  "We've asked the employees, and they don't want us to provide them".

Is there an argument that we MUST get them?  Obviously, we need some kind of entry to put into our pension software... but I suppose that could be a dummy number.  I don't like the sound of that.

I've outlined the main reasons that we would need the SSN (consistency in tracking, possible corrections, possible use of fund platform notice distribution services, it's just What It Is), but I have to admit that if I was an obstinate employer, they aren't exactly convincing that there's nothing a specific kind of random identifier number couldn't handle just as well.

Any suggestions? Thanks.

An IRA owner who had begun receiving required minimum distributions (RMDs) during her lifetime died, following which a dispute ensued among beneficiary claimants to the IRA.  Litigation commenced in 2023 under an interpleader action by custodian bank, involving the decedent's 3 children on the one hand and her late husband's 2 children from a prior marriage on the other.  The latter had earlier in the IRA owner's lifetime been designated as co-beneficiaries of the IRA along with decedent's children.  However, husband's 2 children were removed as co-beneficiaries in an asserted "deathbed" change to the IRA owner's beneficiary designation wrought by alleged undue influence of her daughter at a time when the owner supposedly lacked capacity to make such a change.

Custodian bank advised the feuding beneficiary claimants that payment of the 2023 RMD needed to be made by 12/31/2023, suggesting the claimants work out an agreement under which the RMD would be distributed to one or more of them so as to avoid a missed RMD, with the distribution amount being reapportioned later, once the litigation concluded and the rightful beneficiaries were determined.  No agreement was reached, so the RMD wasn't paid.  Trial is scheduled for late 2024, and it appears probable that the case will not be resolved before 2025, raising the prospect of a missed RMD for 2024.

For the missed 2023 RMD, does it seem likely that the IRS will grant relief from any penalties on the basis of reasonable cause?  Is it possible/advisable to seek a private letter ruling from IRS for the anticipated failure to distribute the 2024 RMD, as the beneficiary claimants again will probably not agree on the disposition of the RMD?

Any other thoughts about how to resolve this RMD conundrum?

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?