A single member plan (62yo participant)  wants to take a distribution from his plan, pay the taxes outside the plan and put the total rollover into a Roth IRA.  Can that happen?

A TPA firm seems to be proactively sending out freeze amendments for small DB plans. No mention of the notice requirement to participants, and the communication is very clear that it says not to return a copy of the signed amendment right now to the TPA, but that if there is a need to reduce the 2024 contribution they will ask the sponsor for a copy of the signed amendment then. Has anyone else seen this? Is anyone else doing this?!

If plans are in danger of funding issues, I  100% agree that freeze amendments should be considered, and if needed executed and notice given. With the ability to increase benefits after year end that now exists with SECURE 2.0, another amendment to unfreeze can be done after year end if circumstances change. I disagree with the "sign this now, but ignore it unless you need it" approach that TPA seems to be taking. 

I disagree with sending a resolution/amendment and telling a sponsor essentially if it's needed at the end of the year, they can provide the TPA with a copy then. 

I have been doing this a long time now, but still learn new things all the time. And admittedly don't spend as much time on DB as 401(k) so they are not my strong suit. However, this seems to be a document violation. Is there something I'm missing that doesn't make this at worst tax fraud and at best an ethical violation on the part of the TPA?

I'm really hoping one of you says "justanotheradmin - there is a special rule for small DB plans that you obviously aren't familiar with that allows just this kind of 'execute but don't have to use if you don't want to' amendment" . 

Can't remember seeing this addressed, so...

Are there any circumstances under which a brand-new 401(k) would now meet the audit requirements in its initial year?  I can see any number of participants being eligible to participate at plan inception, but adding participant balances would take time after the implementation date (i.e. start of the plan year), resulting in no participants with beginning balances.  Am I missing something?

A plan sponsor asked their financial advisor (who in turned asked me) about possibly permitting what may be a REIT in the 401k plan.  The plan is a pooled asset plan with trustee, not employee direction.  The plan sponsor/trustee I believe wants to invest a significant amount into this new investment.

The plan document does not have any restrictions on investments.  The owner who is pushing for this is over age 70.

I want to give them some possible downsides.  Risky investments beyond retirement age would be one.  So would possibly investing in a high risk investment that could negatively impact participant balances.  Although a small plan (around 15 participants), This could be considered a non-qualifying asset and trigger an annual audit.  

Any other obvious matters to point out?

Thank you

Dentist A owns his practice 100%; Dentist B owns his practice 100%.  They do no work for each other.

Dentists A and B are purchasing practice C and will be 50/50 owners.  Practice C hires a dentist who will be doing 75% of the work.  Dentists A and B will work there to fill the other 25% of work.  There is no referral of patients from A or B to practice C, or minimal.

Practice A has a 401(k) with PS.  Practice B has no plan.  So the question was posed to me - does practice A need to cover practice C in the A plan?  I believe the answer is no.  

Thoughts?

Thank you,

Tom

Hi everyone, great to be here and apologies in advance if I haven't put this question in the correct place.

I'm trying to provide a family member with some guidance on a compensation issue they are having with their employer.

The short background is that my family member (who I'll refer to as "Jane") has played a key role in building a company from $0 to a significant current day value.

Because of early-stage company challenges, it never executed Jane's equity agreement when she first joined the company. Because she generally operates in good faith, she didn't push for the issue to be dealt with (until now).

The company is now proposing a change of control bonus (% of sale proceeds) to fix the situation.

Jane is receiving conflicting information on the following aspects of the agreement and I'd appreciate any thoughts on these issues -

1. Does Jane need to be actively employed by the company when it sells for any 409A or other tax/compliance reasons? Technically she would have already 'vested' the right to this bonus if it were equity and so doesn't seem right that she be held hostage for an unknown amount of time for something she has technically earned/vested.

2. Given that there is some possibility she may not be at the company when it sells (let's say in 3-4 years), does this have the characteristics of a top hat agreement and therefore touch on ESIRA?

3. Are there any other concerns/considerations from a tax, compliance or other perspective that she should be considering?

Hi

Never a dull moment with pensions.

Sole prop, has DB and 401k/PS plans.

2022 401k/PS (first year) was deposited into the DB account in October (just found out).

DB is terminated 11/30/2023 and all was rolled over into an IRA including the 401k/PS portion (the plan is still active).

To add more fun, when DB was rolled over, the RMD was calculated on the full amount i.e. RMD was calculated incorrectly (however RMD included the portion attributable to 401k/PS portion.

So, how does one correct all this? Such a mess, they did not even tell me all this even though I was very specific when deposits were going to be made.

Anyone has experience with this mess?

Thanks

Regarding the three (or two) years period, does this mean any employee that worked PT, aggregate for 2021,2022 and 2023, (now 2022 and 2023) OR anyone hired in either 2021, 2022 or 2023) and worked PT in any of these years,  must be given the opportunity to defer?

Semantics or stupidity on my part?

How can an employee be considered LT with only 2-3 years of service?

Plan has a NCP PS allocation with each in participant in their own group.  

For 2023, the client has made 3 groups.  Group 1 & 2 = 3%  Group 3= 0%

Do I need to run a 401(a)(4) General Test or if they pass coverage, am I good?

Company A and Company B are owned 50/50 by the same two individuals.  Each Company sponsors their own 401(k) plan (Plan A and Plan B), neither which are safe harbor.  The owners and their spouses are eligible to participate in both plans.  Plan B only employs the owners and their spouses.

Plan A runs on a fiscal year ending 7/31, Plan B runs on the calendar year.

It's my understanding that we have to ADP test these plans together, but I'm unclear on how to do this.  Do we need 7/31 census data for the calendar year plan and then run the combined ADP test, or do we need 12/31 census data for the 7/31 plan and then run the combined ADP test, or?  Sorry if this is an elementary question but I just can't wrap my brain around this.

Mandatory Aggregation

•  Mandatory aggregation of HCEs is required when an HCE is eligible (not just deferring) for more than one 401(k) or 401(m) arrangement

•  Mandatory aggregation of HCEs is not applicable if the plans cannot be permissively aggregated (i.e., mandatorily disaggregated groups – union/non-union). However, mandatory aggregation of HCEs still applies if permissive aggregation is not permissible due to different testing methods, different plan year ends, or one plan is safe harbor.

An employer funds their discretionary match per pay period.  They also calculate a true-up at year end.  In order to receive the true-up, if any, the employee must be employed on the last day of the plan year.

Do I need to run Benefits Rights and Features on the true-up provision, or does the ACP testing suffice?

Does anyone know or have a reference as to whether a small employer subject to the automatic increase in the deferral limits for a SIMPLE starting in 2024 can elect to make the higher contributions?

Notice 2024-2 clarified that employers with more than 25 employees can elect the higher limits and must make the higher employer contributions (4% match or 3% NEC) but are the small employers able to elect the higher employer contributions?
 

I have not been able to find anything that says they can (or cannot).  SIMPLE IRAs are not my wheelhouse so I appreciate you in advance!

I think I'm overthinking this, but now I just wanted to be sure.

If the Plan is Top Heavy, but no Key Employee received a contribution (they also did not make any deferrals for the year) the Top Heavy is not required correct?

Since the highest contribution percentage for a Key Employee is 0%.  I just wanted to make sure I was not confusing myself.  Just one of those days.

This 401(k) plan was moving along very smoothly.  Then I discovered that for the owner (who didn't defer this year) received a match contribution ... on nothing.  The CPA told the bookkeeper to put $4500 in for him.  Who knows what he was thinking.   We have some true-ups for the other employees that we will eat up most of the $4500 but there is still a some left ($2700).  To remedy this can the owner put in the $2700 as a Roth deferral which would me batches 100% because it is so small?  Amend the W2?  or is it too late?

Keeping in mind that safe harbor does not work for all plans, as we run projected ADP testing for 2024, is anyone else noticing significant changes because of the HCE Comp definition increase from 2022 of $135,000 to 2023 of $150,000?

From the instructions:

"Line 18. Contributions Made to the Plan. Show all employer and employee contributions either designated for this plan year or those allocated to unpaid minimum required contributions for a prior plan year. Do not adjust contributions to reflect interest. Show only employer contributions actually made to the plan within 8½ months after the end of the plan year for which this Schedule SB is filed (or actually made before the Schedule SB is signed, if earlier)."

What are folks doing when the amounts actually deposited during the year are way more than needed?

Assume they will file Form 5330 and pay excise tax.  On the Form 5500-SF (I work only with small DB plans) do you put the full amount of the deposits? And just the amounts actually allocated for the year on the Sch SB? The Sch SB amounts will be lower than the contributions on the 5500-SF. Is it okay that they are different?

Assume the plan cannot be amended to increase benefits (which is now an option for 2024 per SECURE 2.0). 

Hello,

As we know, SECURE 1.0 and SECURE 2.0 increased the RMD age. Let's say a DB plan kept their distribution age at 70.5 and continues to pay mandatory distributions at 70.5. Let's assume a participant turned age 70.5 in 2023 and the DB plan will pay the first "RMD" by April 1, 2024. Can a participant roll that payment to an IRA and avoid taxation since the plan is forcing the distribution sooner than they otherwise are required to? Does by virtue of the plan keeping the RMD age at 70.5 make this an RMD? Or does the participant have any individual choice to roll it since it is paid before 73?

Thank you for your thoughts.

I need clarification on something for the Employer Contribution Credit. The instructions seem to conflict (or perhaps just don't address) with my reading of the actual tax code. I would like to know what others think. 

Does the 3 year lookback apply for all years? or just the first year? - please read my entire question before commenting. 

I.R.C. § 45E(f)(4) Determination Of Eligible Employer; Number Of Employees — 

We are a tax-exempt entity ("A"), merging with another tax-exempt entity ("B").  Both A and B have 457(b) Plans.

We are concerned the merger will trigger distributions under B's 457(b) Plan.  The B Plan provides for distribution upon Severance from Employment.

According to the regulations, a severance occurs when the participant has a severance from employment with the eligible employer.  Eligible employer is defined as the tax-exempt entity that establishes the Plan.  

Can A just take over the B Plan and treat it as if no severance occurred?  A did not "establish" the plan, so maybe not?  What are our options here?

Thank you.

A Safe Harbor Match plan currently has no allocation conditions for Profit Sharing and the formula for Profit Sharing is defined as pro rata.

Can the plan change the formula to New Comparability - One Group per Participant mid-year?

No profit sharing has been funded to the plan yet in 2024 and the plan document defines the period for determining the amount of an allocation of Non-Elective Contributions as End of Plan Year.

Thanks.