Regarding  catchup contributions starting 1/1/2024 going to the Roth source for certain high earners, is that only for W2 employees? What about Schedule C/Schedule K owners? And how would that work for those people whose money is in pooled accounts and not separated by source, other than by a TPA in their system?  TYIA. 

Here's an odd one - possible takeover plan.  Plan Documents reflect a plan effective date of 12/01/1988.  The 5500 forms going back at least until 2009 on EFAST show the plan effective date to be 01/01/1998.  Can this be changed on the 5500-SF prospectively or should the past 5500 forms actually be amended?

Thanks in advance.

I just want to confirm what the 415 limit will be for a plan year than runs from 7/1/23-6/30/24? It seems to me that it is based on the limit for 2024 but I do not have that yet. Thank you!

I inherited a takeover plan that was not tested last year. The plan uses prior testing method and is not safe harbor. What are my options?

Client currently funds 7% Profit Sharing to all participants.  This is cross tested plan.

They also allocate the 3% to all participants. 

For the upcoming plan year, the HCEs will not receive the 7% - testing will not be an issue.  However, the client wants to know if they can allow the HCE to decide if they will take the 7% as cash or defer into the plan.   The 7% would be paid as wages in the current plan year and deferred to the 401(k).

If the employee has already deferred for the 2023 plan year, the 7% would push him over the deferral limit, so he would be capped at the 402(g) limit.

I thought the IRS had some guidance when you allow the employee in this case to take the cash or defer.  I am trying to figure out if the client is opening themselves up to an issue down the road.

The client has until the filing of his tax return to fund the 3% safe harbor.

He is making the safe harbor on a monthly basis.  Is there is an issue if he does not make the payment for a couple of months when the cash flow is low?

Participant (NHCE) passed away in mid 2022 but the company payroll dept continued to send her regular 401k amount for deposit into the mutual fund account.  It wasn't withheld from any pay; it just kept coming out of the company bank account, along with the match.  This went on for over a year, spread across 2 plan years.  Roughly $10,000 in 401k and $8,000 in SHMatch was deposited that should not have been.

The deceased participant's account (100% vested) was paid out to the beneficiary, including these excess 401k and match amounts.

Is the only course of action to go back to the beneficiary to reclaim these amounts?  The plan sponsor is reluctant to push too hard from the beneficiary but there is no other way, correct?  If the beneficiary does not pay it back and the plan sponsor does not pursue it further, is there an amount the plan sponsor owes to the plan to make up for these excess amounts?

Thank you

I just wanted to make sure my thinking was right in terms of a formula for a Cash Balance contribution for an HCE.  I know you can put either a percentage or a dollar amount as the set benefit, but does a formula like this work:

20% of compensation up to a maximum of $50,000?

It would only be for the HCE, I just wanted to make sure that it was OK to put the cap on the benefit like that.

Thanks in advance!

Curious how folks are handling the situation of a participant who receives back pay for prior years.  Are you making corrective contributions for missed deferral opportunities and any employer contributions with respect to the back pay?

Treas. Reg. § 1.415(c)-2(g)(8) provides that it is generally taken into account for the limitation year to which it relates.  So for 415 (and 414(s) testing comp) purposes, it would be included for the prior year(s) to which it relates.  However, back pay is reported on Form W-2 for the year of receipt.  So, if a plan uses a W-2 definition of comp, it seems that the back pay would be picked up in the year of payment, even if the individual doesn’t have 415/414(s) comp to support it.  It seems odd to me that the timing would differ, but I suppose not everything in the wonderful world of ERISA makes sense.

Just kind of thinking out loud here -

Ever have a client ask if they can add a DB plan when they already have a SEP, and then you have to tell them the 5305 Model SEP document precludes a second plan?

A lot of times these sole proprietors have NO idea what sort of SEP documentation they set up years ago - so I was wondering it might be "obvious" that a custodian like Fidelity, Schwab, Merrill Lynch, etc. would or would not clearly be using a proprietary SEP document.

So I wonder - is there a reasonably accurate list anyone maintains that would say "THESE guys definitely use their own SEP documents, but THIS custodian issues its customers the 5305, so be careful?"

--bri

Situation is: 

• Employee & child are covered as active under an employer group plan
• Employment is terminated and the employee + child elect COBRA
• Several months later, the employee becomes entitled to Medicare

Can you please confirm if this second QE qualifies the child for the additional 18-months (total 36 from the time the employee terminated employment)?

I understand the missed deferral is treated as a QNEC.  I'm unclear if that is just from the ER's perspective and it needs to be deposited into a source named QNEC, or can be put into the 401k source, since it will be 100% vested there etc.

Also, the missed match, I think it can just be deposited into the match account, not a QNEC account.

(Lost earnings included in above).

I just like to be 100% because RMDs are critical as you know given the potential penalty.  

Participant has pretax and Roth in a 401(k) plan and is required to take RMD now in 2023.  The RMD is based on the account value in total - but I think the participant may allocate the RMD between pretax and Roth as they choose? 

Thank you 

A distribution will be paid 10/1/2023 from a non-governmental 457(b) Plan.  The total amount of distribution will need to be reported as taxable wages on the W-2.  The distribution will be paid directly from 457(b) account to participant.

1) If this is eligible compensation under the document, how can an employee defer from this as it is not actual compensation being paid via a paycheck?  

2) Is there any ability to have taxes withheld from the payout or not?  I expect not, since no 1099-R, unless I am completely confused.

3) Do I understand the process correctly, which I believe is to pay from the account, but report on a W-2?  Or should the distribution not be paid from the account and instead paid in ta paycheck with tax withholding (aside from previously withheld FICA)?  If the latter is the case, does the amount in the 457b account get paid directly to the employer?

Thanks!

If a plan document was restated and removed the early retirement age provisions (fully vested and entitled to a contribution if terminated and met ERA), is this a protected benefit for those plan participants prior to the restatement.

We have a tax client that decided to use an ROBS to fund a franchise investment. They used a promoter; when I got the promoter on the phone and asked if they were a TPA, she explained they are a "partial-TPA". 😳  Basically, they do all the plan doc, compliance, DOL/IRS filings and client communication BUT no heavier service models (no 3(16), etc.) and rely on the PS to track and pass required PP docs and track eligibility. 

Waiting on AA and plan doc to review; 5500 was said to be filed for 2022 but I have not personally reviewed yet.  We're obviously going to be super sensitive to PT issues of ROBS (owner comp in the c-corp reasonable, no PII loans, etc.), and with the understanding the IRS has a compliance program specifically for ROBS plans. I have been asked to source a RK, provide 3(38) services (I am an RIA/IAR and have plenty of plans we act as 3(38) on), and assist with enrollment. This is a 120+ EE plan.

Anyway, plan has been up since 2022, investment in the private c-corp franchise was done in 2022 and in 2023 (in a couple of months) they'll have their first 1-year EEs becoming eligible. As best I can tell, everything else is above board with the "partial-TPA"s involvement. There is currently no RK on the plan as until a couple months from now there haven't been any eligibles. The "partial-TPA" advised that the company is already too large for them to handle and suggested we find another. I've already spoken to a TPA I have a long-standing relationship that is very familiar with these ROBS designs. I am also sourcing RKs and making sure they are OK to work with an ROBS plan. The client company so far has been quite successful, and we are preparing valuation firm for ongoing valuation of the c-corp stock purchased by the owner/EEs with their rollover into the plan.

Just wondering if anyone has had any experience with these? Is there anything from a tax/advisory perspective that I might not find in easily accessible in my research that I should know about? This will be my first ROBS plan; I have a bitter taste in my mouth from S/D-IRAs and the promoters who are more asset gatherers/sales oriented than compliance & fiduciary oriented, which have gotten a few of our tax clients in trouble in the past, so I'm hyper cautious and will be eager to get vendors I trust involved going forward.

Thanks in advance!

Sch D is needed only when plans invest in MTIAs (master trust investment accounts), GIAs (group insurance arrangements -  I assume referring only to welfare benefit plan), CCTs (common or collective trusts), PSAs (pooled separate accounts) and 103-12 investment entities (whatever they are). which along is extremely puzzling. 

The Wolters Kluwer 5500 Preparer's Manual indicates under the Who Must File Schedule D outlines when Sch D must be filed for investments in the above and indicates their related asset reporting lines on Sch H - 1c(9) through (12).  So I assume when those lines have no value, then Schedule D is not needed.   Our plans generally have almost all assets reported under (13) for mutual funds.     

So it seems for plans on Ascensus, Hancock, Empower, Principal, American Funds, etc., generally Schedule D is not needed if the plan assets are held in mutual funds and have no reporting on the Sch H lines mentioned above.

Comments are appreciated.  And yes I've ready the instructions to Schedule D - still seems clear as mud to me.   We only have a handful of long form 5500s fortunately which I'd love to transfer out!

Thank you!

what is the best method to correct this?  I haven't seen this one before.

Just wondering what others have experienced this year -

We filed a few 5558 forms at the last minute (July 28th to be exact) and sent them via certified mail to the IRS address in Ogden, UT.  (Historically, the USPS doesn't usually get a signature but we haven't had any issues and the USPS website eventually shows the package as delivered.)  Anyway - this year when I use the certified mail tracking number it still shows as "moving through network" on the USPS tracking site.  However it does show the mailing was received at the USPS Salt Lake City Distribution Center.  Am I being overly concerned?

A State might have an income tax law that does not follow the US Internal Revenue Code.

Is anyone aware of a State’s tax law that would treat as not an income-free rollover a transaction or an amount treated as rolled over for Federal income tax purposes?