We have a client with a safe harbor and cross tested profit sharing plan. They opted to maximize contributions for the owners. 5500 was filed and participant statements delivered. Now they do not have the money to fund the plan. Can they amend the profit sharing contribution and 5500 by still giving all the NHCE's the same contribution, but reducing the owners profit sharing to zero?

Anyone else have clients getting extension letters from the IRS saying their 12/31/2022 PYE are 6/30/2023 PYE and their 5500 is extended to April? 

We have seen a few.

I am trying to understand if contributions (Pretax, Roth, and after-tax, also known as Mega Backdoor Roth) to a solo 401k can be made before the tax deadline and not strictly by the end of the year for a Sole Proprietorship.

I was reading that contributions can be made before the business tax deadline, except for the Employee contribution part, which should be made before the end of the year:

While employee 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, 2023. The W-2 will include your wage income and any deduction for employee retirement plan contributions will be reduced on the W-2 in box 12. As a result, you should make your employee contributions (up to $20,500 for 2022) by January 31st, 2023 or you should at least determine the amount you plan to contribute so that you can file an accurate W-2 by January 31st, 2023. 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 a said contribution by the tax return deadline (including extensions).

I am a bit confused about the W2 part. As a Sole Proprietorship, I do not have a W2 form (I give my customers a W9 form when making contract work). Does it mean I can make the Employee contribution part before the tax deadline?

Also, can the Mega Backdoor Roth be done before the tax deadline as well?

We use Relius ASP and no one is able to use the file transfer tool to port files between the Relius Desktop and our local desktops.  Anypne having the same issue? Saturday October 7th..

I have a plan that was audit level in 2021.  They are current at 101 participants.  Two participants terminated in 2021  has a zero balance on 1/1/2022, but received lost earnings within the year.  Datair is counting them in the 2022 beginning participant count.  Since they didn't have a beginning balance, should they considered a participant for the Form 5500 count?

We have a defined benefit plan that is seriously underfunded, with a required contribution needed for 2022.  Benefit accruals have since been, prospectively, frozen with appropriate advance notices.   (This was actually done several years ago.)  I also note that the plan is NOT covered by PBGC.  One thing that the Client is being advised to do is to have the Plan be deemed terminated retroactively.  For example, amend the plan NOW to say the plan was deemed terminated as of 12/31/2021.  Is this allowed?  Thank you very much for your replies, especially in light of 10/15!

Hello, 

We are trying to utilize the online capability of having participants requests Hardships and In-Service Distributions as well as Loans directly through the website.  Is someone able to point us in the right direction on the procedures Relius provides in order to get this setup accurately with all the specific distribution/loan provisions that a plan would have? 

Thanks for any assistance that can be provided. 

A brand new DB plan effective 1/1/22 was adopted in August, 2023. May the plan's formula be amended before 10/15/23 to increase benefits effective 1/1/22? The plan sponsors 2022 tax return has an extension to 10/16/2023.

Thank you.

If an individual was in 2 different retirement plans, both of which permitted after-tax employee contribution, could the individual contribute say $50,000 after-tax into each (assuming compensation is high enough, passes testing, etc)?

My spouse and I have separate solo 401k plans (let’s call them Plan A and Plan B), which we opened a few years ago when we undertook self-employed activities. This year, we opened an LLC as QJV and are looking to consolidate those solo 401k plans into one (let’s call it Plan C).

Furthermore, after some research, it seems that in community property states, we’re considered a Controlled Group and can only have one solo 401k plan. However, we have two solo 401k plans and need to fix this as soon as possible.

We are trying to understand the best course of action.

Option #1:

1) Adopt a new solo 401k plan (Plan C)

2) Perform trustee-trustee transfers from Plan A and B to the new Plan C

3) Close the old solo 401k plans (Plans A and B)

Option #2:

1) Amend (restate) Plan A so it becomes Plan C

2) Perform a trustee-trustee transfer from Plan B to the new Plan C

3) Close solo 401k plan (Plan B)

Option #3:

Create a controlled group plan, which will list both Plan A and Plan B in the solo 401(k) plan documents (Plan C).

It seems like Option #1 is the simplest one, but I’m unsure if it’s ok to do it. Option #2 acts as a middle ground, but its benefits compared to Option #1 aren’t very clear to me. Option #3 appears to be the most complex.

Would appreciate any insight here. An employer provides an employee a vehicle for business and personal use. There is no substantiation, etc. The full value is taxable to the employee. As a taxable, non-cash fringe benefit, the employer normally would be required to withhold federal income tax based on the value of the non-cash fringe benefit provided to the employee. Say the value is $500 per month.

However, Section 3402(s) and Announcement 85-113 say that an employer can choose not to withhold federal income tax from the value of a "vehicle fringe benefit" (a taxable, employer-provided vehicle). Even though withholding is optional, there is nothing in Section 3401(a) itself that exempts taxable vehicle fringe benefits from "wages" as defined in Section 3401(a). 

So is the $500 per month included in 3401(a) wages for plan purposes? My initial reaction is yes, but interested to hear what others think.

For what it's worth, this differs from GTL over $50,000, which is specifically excluded from 3401(a) wages in Section 3401(a)(14) (whereas vehicle fringes are not excluded in Section 3401(a), but rather subject to optional withholding under Section 3402(s)).

Upon termination of a DB pension plan, surplus pension assets may be transferred directly to the employer's DC plan to avoid or reduce the excise tax otherwise applicable under Code Section 4980. Is there any reason that the surplus assets cannot be transferred in-kind to the DC Plan? Thanks.

For 2024’s emergency personal expense distribution, Internal Revenue Code § 72(t)(2)(I)(iii) states:

DOLLAR LIMITATION.—The amount which may be treated as an emergency personal expense distribution by any individual in any calendar year shall not exceed the lesser of $1,000 or an amount equal to the excess of—

(I)    the individual’s total nonforfeitable accrued benefit under the plan (the individual’s total interest in the plan in the case of an individual retirement plan), determined as of the date of each such distribution, over

(II)  $1,000.

What does this mean?

Does it mean a participant whose whole account (let’s assume it’s all 100% vested) is $1,787 is restricted to $787 for her emergency personal expense distribution?

I am assisting a new hire for a 401k client (my firm serves as third party administrator).  The Plan Sponsor's owner (small company) would like me to train this new employee both with respect to an overview of the IRS, DOL, etc requirements for 401k plans, and also issues that are specific to this plan, which I'm glad to do for the this long time client.  

I also think it might be beneficial for this employee, to take a course taught by a professional educator, that introduces someone who does not have previous job experience that involved the day to day operation of a 401k plan.  Can anyone recommend an online (day-long, for example) course for this employee? 

Specific websites, company names are appreciated.  I've searched my local CPA society offerings and done some basic web searching, and of course I'm aware that that there are hundreds of options for specific issues within the 401k world ("EPCRS update" for example), but I'm not having much luck finding a "401k for beginners" overview course.  Appreciate any suggestions.

Hello All - would like to have a regular advisor email list to send out newsletters too, especially with Secure Act changes.  Is there a particular company that is better, to one, purchase the list for certain areas and two prepare the newsletter with input from me and perform the service of the email blast?  Thank you.

Good morning, I hope all is well.  Generally when we file Form 5500 we do so on an Accrual Basis.  I'm taking over two 401(k) plans, where the previous TPA has been filing the Form 5500 on a Cash Basis. 

I assume there is no issue, one way or the other?  Is it better to continue filing them on a Cash Basis, or should we consider switching over to an accrual basis?

Thanks!

Employer sponsors a 401(k) Plan.

A while back a group of employees under the plan were moved to the Union Plan.  The participants contribute to the union plan however, their balance from pre-union remains in the Employer sponsored. Plan

A participant who has an account balance and who is now a union employee requested a loan from the "non" union Plan. Technically this participant is not an active participant. The participant is coded as inactive on the original 401(k) Plan.

Since he is not active (which is a requirement for a loan) is he eligible for a loan?

A QDRO was received and approved on a participant's pension (DB) benefit.  The order was a separate-interest order (i.e. not a stream-of-payment).  It turns out, it never should have been filed, and both parties agree (according to the participant, anyway).

The Participant has not begun receiving payments.  We don't know yet if the AP has.

• Assuming she has not begun her benefit, can we simply have them provide an amended QDRO, reversing everything?
  • In the meantime, is it okay practice to lock her benefit until we can get it settled?  (I realize this would only be necessary if she thinks she is entitled to the benefit, but we just don't know yet).
• If she has begun her benefit, is there anything we can do?  We can't stop the benefit once it is in place, so the only option I can think of is for him to get a 100% stream-of-payment QDRO on what she is currently receiving.

Thanks all!

Safe Harbor 401k has the standard one year of service 1000 hours rule.  The owner want's to bring their spouse into the plan.  The spouse does work for the company but hasn't been on the payroll.  Is this permitted?  The onwer wants to start the spouse on the roster so that the spouse can max on the deferral side and recieve the SH match as well.

A CPA/Auditor friend of mine came up with these two questions today. First, she is auditing a 401(k) Plan that has been "frozen" since January 1, 2020. The reason for the freeze was to correct operational defects in the plan from 2017-2019; which, after she described it, was failure to complete compliance testing and make appropriate refunds to HCE's. Her question was whether the plan should be considered terminated, due to lack of contributions for 3 years (still frozen as of today); my thought is that perhaps the Plan Sponsor (still a viable company and not subject to closing or bankruptcy) froze the plan to avoid 100% vesting on the matching contributions going into the plan. My response to her was to question the plan sponsor as to whether, once the defects are corrected, was going to unfreeze the plan and let deferrals resume. Otherwise consider formally terminating the plan. Any thoughts on this?

And second, a participant took a $50,000 loan in June, 2022 for the purchase of a principal residence, payable over 30 years. However, the house was purchased in December, 2021 and closed in February, 2022. Isn't this out of order? And then the participant "refinanced" the loan in September 2023. And, just to make it more interesting, the participant is the owner of the company.

Thanks for any replies. I'm both a TPA and a CPA/auditor, and these are 2 questions that made me scratch my head.