When would the "taxable amount not determined" box be checked on the 1099-R?   I have a single member plan (Solo) that came to me asking what is involved to terminate the plan.  I asked if ROTH deferrals were made in addition to employer.  The answer was yes.  I was told that all contributions were deposited into a single investment account.  

Do we need to go back and calculate the earnings for the ROTH money and the Employer money?

As I write this, how can he roll his account over to an IRA?  He can't roll it all into a ROTH IRA and at the same time he wouldn't want to roll it all into a traditional IRA and lose the tax benefit of the ROTH deferrals.  He is facing a conundrum.  That said, all I am tasked to do is prepare a final form 5500 and a 1099-R based on the information provided to me.  I can (and will) advise what he should do.  What he ultimately does is his choice.

So, back to Box 2b, do I prepare one 1099-R and check that box?  Prepare a letter covering my butt and be done?

So just a little background:

1. There's a total of 37 eligible participants
2. 4 are owners (including owners through family attribution)
3. 19 HCE based on compensation

I know you can limit the HCE to the Top 20%, and all owners are considered HCE.  So in this case, regardless of the compensation of the owners, would we use them and then the next 4 highest to create the 8?  Or do you use the highest 8, and then add any owners who are not included (so you would be over 8)?

Thanks in advance!

This is certainly a very welcome change.  I assume "Beginning on Jan. 1, 2024"  means ANY form for any plan year calendar 2023 or fiscal year ending in late 2023.  

Thank you

Under Code section 162 (incorporated by reference into 404), a corporation cannot deduct expenses of another corporation, even if the two are part of the same controlled group.  So for example,  a parent company cannot take deductions for contributions it makes to its 401(k) plan on behalf of employees of a subsidiary. There is an exception in 404(g)(2) in the case of termination liability that permits a corporation to deduct termination liability paid on behalf of another member of the controlled group.  I have what I think is a simple question, but am going around and around on how it should be resolved.  Assume in all cases the the party wanting to take a deduction actually will actually pay the expense.

Corporation A wants to sell Corporation B to Corporation C, which is unrelated.  Corporation B has both a 401(k) plan and a defined benefit plan.  Corporation C does not want to take over either plan.  So before the transaction, Corporation A takes over both plans, assuming all the liabilities.  The 401(k) plan is terminated immediately before the transaction, but not all liabilities have been paid at the time of the transaction.  Rather than holding up the transaction for the 60 days until the DB plan can be terminated, a resolution is adopted to terminate the DB plan before the transaction, but it is terminated shortly after the transaction.

It takes a little while to work out all the liabilities under either plan.  (E.g., there is a liability for employer matching contributions under the 401(k) plan.)  So contributions must be made after the transaction to cover liabilities from before the transaction.   In the case of the defined benefit plan, can Corporation A take a deduction if it pays the termination liability, because at the time the liability was incurred,  Corporations A and B were part of the same controlled group?  Or because at the time of the termination Corporation A was the sponsor of the plan and thus liable for the termination liability?  Or is it barred from doing so because the employees covered by the plan were all Corporation B employees and the termination (and thus the liability) occurred only after Corporation B ceased to be part of the controlled group?  Conversely, is Corporation B barred from taking a deduction if it pays the liability because it is no longer a sponsor of the plan at the time of the contribution?

Who, if anyone, can take a tax deduction for the contribution to the 401(k)?  Is Corporation A barred from taking a tax deduction if it makes the contribution because the liability for it relates to employees of a different corporation?  Conversely, is Corporation B barred from taking a tax deduction if it makes the contribution because it is no longer a sponsor of the plan in question?

And does the answer as to the 401(k) change if Corporation A terminates it only after the transaction?

This has to come up all the time, but for some reason I've never been asked the question before.

We have a Cash Balance Plan. Under 401(a)(26), we must have 50 participants. We have a cycle where annual contributions are set for 3 years. Assume we have 51 participants in year 1, all receiving meaningful accruals. If we have 3 participants retire in year 2, putting us at 48 participants, how do we correct since we have fallen below the minimum participation threshold? Added fact: all participants are HCEs.

Thanks.

Let's say a plan charges a distribution fee of $100.

All terminee account balances under $100 are to be forfeited.

I'm curious if there's a trend to actually use a higher forfeit de minimis amount, say for those balances that are just so minimal yet over $100.

For instance, if the account balance is under $120, rather than create IRA's of $0 - $20?

Company A  with a 401(k) plan with a nondiscretionary SH is being acquired in a stock sale this coming week by company B which wants A to terminate their 401(k) plan B's lawyer insists that the plan can be terminated right away before the sale date but according to this IRS webpage on Participant Notices:

The court awarded my client a percentage share of her ex-husband's 401(k) account.  It turns out that abut 90% of his 401(k) are in a Roth funds.  I am working on the QDRO.  

She plans to take a taxable distribution since she needs the money now.  If the distribution was coming from a traditional pre-tax 401(k) it would be income taxable to her and the Plan would withhold 20% for Federal taxes, and there would be no 10% premature withdrawal penalty under IRC 72(t)(2)(C).  

Since it's a Roth account, will she have to pay income taxes on a direct distribution, or will it be tax free? 

72(t)(C) provides that an exception to the imposition of the 10% penalty under 72(t)(1) includes:

"(C)Payments to alternate payees pursuant to qualified domestic relations orders: Any distribution to an alternate payee pursuant to a qualified domestic relations order (within the meaning of section 414(p)(1))."

So one would surmise that the 10% penalty will not apply to the Roth distribution.  

I guess she could take a loan or make a hardship withdrawals if she is disabled, or she can just wait until age 59-1/2. 

What do you think?  Any creative ideas? 

David

The court awarded my client a percentage share of her ex-husband's 401(k) account.  It turns out that abut 90% of his 401(k) are in a Roth funds.  

She plans to take a taxable distribution since she needs the money now.  If the distribution was coming from a traditional pre-tax 401(k) it would be income taxable to her and the Plan would withhold 20% for Federal taxes, and there would be no 10% premature withdrawal penalty under IRC 72(t)(2)(C).  

Since it's a Roth account, will she have to pay income taxes on a direct distribution, or will it be tax free? 

72(t)(C) provides that an exception to the imposition of the 10% penalty under 72(t)(1) includes:

"(C)Payments to alternate payees pursuant to qualified domestic relations orders: Any distribution to an alternate payee pursuant to a qualified domestic relations order (within the meaning of section 414(p)(1))."

So one would surmise that the 10% penalty will not apply to the Roth distribution.  

I guess she could take a loan or make a hardship withdrawals if she is disabled, or she can just wait until age 59-1/2. 

What do you think?  Any creative ideas? 

David

Does anyone know whether this guidance is still reliable?  I thought there was a sunset on this, but looks like it may still be applicable.  Specifically, I am wondering if a governmental employee may take an in-service distribution before age 59 1/2 since the plan allows for earlier retirement age (age 53). (See Q&A #2). TIA

https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers#:~:text=Q2%3A May a qualified pension,the plan's normal retirement age  

Hi. We have a Cash Balance Plan. A participant has asked about in-service distribution (rollover). Specifically, he is asking if he makes a contribution in 2023, and reaches age 59 1/2 in 2024, can he rollover the funds into a traditional IRA as an in-service distribution and continue to participate in the plan. 

My understanding is that this is not permissible. This seems like it would directly go against the concept of a cash balance plan and almost treat it like a 401k. But my understanding of cash balance plans is definitely lacking. The participant says he has been told by others that this is allowed. Can anyone help?

Hi

The way I have been doing every year, I prepare the AFN and also provide a mini-SAR (software does it this way).

Taking over a plan where the other TPA insists that AFN is sufficient i.e. no SAR is required and they have never provided to the plan sponsor.

Am I missing something here?

Original 1099R completed and filed and then corrected one filed, only issue is that corrected box didn't get marked.  Any idea how to fix this?  Now both are showing as income for him.  This was a complicated in kind rollover and the original amount rolled over was overstated.

Just a curiosity question from a budding actuary

In ASOP 27 under "3.9.2 COST-OF-LIVING ADJUSTMENTS" it states that an actuary, for qualified pension plan funding valuations, "may be precluded by applicable laws or regulations from anticipating future plan amendments or future cost-of-living adjustments in IRC limits."

This is consistent with what I have always seen done for valuations I work on, which include two plans that provide automatic COLA increases to benefits and have plenty of participants with benefits limited by section 415. When calculating the Funding Target we project the COLA increases in the expected benefit streams for current retirees, actives, and TVs, but constrained to the current plan year limits. 

I am just curious what "laws or regulations" the ASOP is referring to that prevents us from projecting the limits for funding purposses? 

In the Gray Book's response to question 1995-11, which asked if future changes in Section 415 limits and compensation limits due to indexing should be treated as plan amendments. The IRS response was "The current position is that all changes in actuarial liabilities due to the section 401(a)(17) and 415 limits are to be treated as plan amendments, even the increases that automatically occur under a plan’s terms."

Is this somehow maybe tied to the answer? I primarily work on single employer plans, which are required to use an accrued benefit cost method. So I thought maybe this tied to the definition of an accrued benefit. But I think ASOP 27 covers multi plans too right? And they are not restricted to a specific cost method? So is there perhaps a definition or discussion somewhere around the provisions for calculating liabilities for funding purposes under the applicable parts of the code (430/431?)?

I appreciate any insight anyone can offer. I have already spent a long, but fruitful amount of time going down regulation rabbit holes this last week. While I very much enjoy my time descending into them I could use a little help with this one. Thanks!

background

Controlled Group -

Company A - Non Safe Harbor

Company B - Safe Harbor

Plans do not pass coverage on their own.  Can't aggregate since one is Safe Harbor. Understand need to get coverage corrected before moving the ADP/ACP Testing.

When the ADP/ACP Test is done, doesn't company B need to be included in the ADP/ACP Test? The ACP test would be the match they received under the SH while the match for Company A is their discretionary match. Somewhere I recall the Safe Harbor status is "lost" when the plans are combined for testing purposes.

I have a cross-tested profit sharing plan whereby the company is owned by 3 siblings who inherited the stock after their father became deceased.  2 of the owners earn W-2 pay but do not work for the company.  The PS formula requires 1000 hours to receive a contribution.  Since they do not work any hours, can they be legally disqualified from receiving a contribution?  This plan does not include a 401k component and is not safe-harbor.

Hi Everyone,

Here is the situation. Alternate payee Ms. M does not want the fund distributed to her, because it will affect her Medicaid benefits. She requested that the fund to be returned to her ex-spouse. She will send in the documents to cancel the QDRO. 

Is it possible to?

I would like to find out what are the steps or things that need to be watched out for.   Are there guidelines that we need to follow? This is something that I have never encountered before.

Thanks in advance for everyone's info. 

I was asked a basic question but not working with Davis Bacon contributions I was not sure:  Are Davis Bacon contributions considered employer contributions to a plan and if so, would they count towards the 25% deductible employer contribution limit?  I assume they count towards an employee's 415 limit.

Thank  you

Hi everyone,

Any thoughts on if it is permissible to change the definition of disability in a DC plan, or would the definition of disability be considered a protected benefit subject to the anti-cutback rules?  Does the answer change if the definition of disability is used as a distribution trigger or to provide for immediate vesting?

I am aware that it's not uncommon for DC plans to be amended to change the definition of disability (ex. back in 2018 when the DOL issued the claims procedure regs requiring retirement plans to require adding disability claims procedures if the disability definition included some discretion) but have not been able to iron out whether this type of change is subject to the cutback rules.

Thanks for the community's help!

For any of you TPAs who also do in-house recordkeeping, what software do you use to manage client onboarding? I am currently researching project management systems that include a client portal (for the new client to complete and return forms, for the advisor to upload their investment menu, etc.). Any ideas? Thanks.