Hello,

Made a Roth IRA contribution in April 2021 for Tax Year 2020. 

Got an extension to file taxes.

Found that I have made 1K contribution more than allowed. 

I thought Fidelity could just reduce the amount for 2020 by 1K and put 1K as contribution for 2021 as this is Roth IRA and contribution was made in 2021.

But it seems that they cannot do it past filing deadline of May 31 this year.

What is the best/easiest way to handle this? There seem to be a few ways here.

Age less than 57

Thanks

I would like to understand implications of extending the expiry date of vested ISOPs beyond the plan expiry date for optionee and employer -

Optionee had vested options provided by the employer. Employer is a privately held company. Before the options expired, optionee, over email expressed to the CEO, Founder-Chairman, intentions to exercise all the vested options and requested for paperwork and guidance on the next steps. CEO emailed back to optionee explicitly stating that optionee's options stand extended for another 5 years and during this period they will continue to remain vested exercisable. 

Fast forwarding 2 year later, optionee continues to be the employee of the company. Founder-Chairman has brought new CEO who is rolling out a new ISOP plan with different terms and conditions than the previous plan. 

Questions seeking answers for -

1. What choices company has to make true to the promise previous CEO made to the optionee? 

2. In each of the choices what are the tax implications to the optionee? 

3. Optionee's preference is to exercise the options and would like company to issue the stock instead of any cash options. How does company fulfill this? 

The client thought they had filed the 5500 for their welfare plan when it was signed on 7/21; however it was not realized until 8/4 that it was never actually filed, so they filed on 8/4.  The deadline of July 31st which fell on a Saturday so the next business day was August 2nd.  So it was technically filed 2 days late.  I know the DOL can assess penalties per day for being late.  What’s the likelihood the DOL will penalize them?

Hi

Looking over for possible takeover dc plans.

They have been filed on a cash basis in the past.

I neither like nor believe in cash basis filings as my reports must match my filings, old habits.

As far as I know, consistentcy is crucial when it comes to the filings.

Is there anyway to switch from cash to accrual method and if possible, how can it be accomplished?

If anyone has any experience, would appreciate any comments/suggestions.

Thank you 

Does anyone know whether Governor Andrew Cuomo is at risk of forfeiting his New York State pension?

From today's Employee Plans Newsletter

Quote

Plans Retroactively Adopted After the End of the Plan Year Have No 2020 Form 5500 Filing Requirement

Section 201 of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) permits an employer to adopt a retirement plan after the close of the employer’s taxable year (by the due date, including extensions, for filing its tax return for the taxable year) and elect to treat the plan as having been adopted as of the last day of the taxable year. This provision applies to plans adopted for taxable years beginning after December 31, 2019.

If an employer adopts a plan during the employer’s 2021 taxable year (but not later than the due date, including extensions, for filing the employer’s 2020 tax return)

• and elects to treat the plan as having been adopted as of the last day of the employer’s 2020 taxable year,
• then the plan sponsor will not be required to file a Form 5500 with respect to the plan for the plan year that begins during the employer’s 2020 taxable year (references to Form 5500 include the Form 5500-SF and Form 5500-EZ unless otherwise noted).

Instead, the first Form 5500 required to be filed with respect to the plan will be the 2021 Form 5500. However, the plan sponsor will be required to check a box on the 2021 Form 5500 indicating that the employer elects to treat the plan as retroactively adopted as of the last day of the employer’s 2020 taxable year.

Additionally, if the plan is a defined benefit plan, the employer will be required to attach a 2020 Schedule SB to the 2021 Form 5500 or Form 5500-SF, in addition to a 2021 Schedule SB. The instructions for the 2021 Form 5500 will further explain the filing requirements for plans adopted retroactively.

We anticipate that similar rules will apply to the retroactive adoption of a plan pursuant to section 201 of the SECURE Act after an employer’s 2021 taxable year.

Unbelievable, but accountant asking for our opinion here.

Sole proprietor sponsors a DB plan, compensation obviously Schedule C. Plan is valued beginning of year, ie 1/1/2020 with Schedule C based on prior year.

The client has an auto withdrawal from his personal account deposited to the plan during the year.

He had $0 Schedule C for 2020, but since valuation is beginning of year and using prior year Schedule C, we backed into the contribution and showed on Schedule SB as well as form 5500-EZ.

He filed his 1040 in March, no Schedule C; but did receive compensation, included in income for 2020, which the accountant showed on the 1040 and claimed a deduction for the contribution

He gets a tax bill from the IRS for $29,000; they claim since he had no Schedule C, he is not entitled to a deduction.

Since he made the contribution, and is shown on the brokerage statements for each month, in order to reconcile included the contribution, since shown on the statements, and was included on Schedule SB and the 5500s.

Since minimum funding and deduction are separate matters, we are thinking of withdrawing  just the amount of taxes owed, show as an in-service distribution (client over age 62), give a 1099-R, deposit into his business account; pay the fine; but more importantly, stop the auto withdrawals and make absolutely sure the client that is paying him gives him a Schedule C in the future.

Thoughts. besides advising to find a new accountant?

Hi

This is first for me and want to check if test is needed.

DB plan covering 1 owner HCE and one non-owner HCE.

2021 AFTAP is certified at 165% so no issues there.

The non-owner HCE is terminated a  month ago  and accrued a benefit for 2021.

Do I need to check for 110% liability test? I do not think so?

If yes, I will add FT to TNC and possibly use 430 rates. Is it ok to use ARPA-21 rates to test, if necessary? Owner is ok with whatever rate that would allow the non-owner HCE to be paid out.

Thanks

i've been getting a lot of inquiries about after-tax contributions from clients.  

The question I have is this:

Do after-tax contributions have to treated as comp to comp as part of the ACP test or can you use new comp for the calculation?

For example, owner is 60, makes $200k and puts $20k after tax.  This is a 10% contribution.

Employee is 30, makes $50,000 and puts in zero.  The profit sharing contribution to employee is 10%(ish) or 3.5% (ish)?

Thoughts?

In the divorce that was finalized on April 20, 2021, I was awarded 60% of his 401(k) plus additional money. I have filed with my QDRO attorney and all is ready. All he has to give the attorney if the amount of the 401(k) the day we got married and the amount the day our divorce was final. He refuses! My attorney that I had for divorce is a JOKE … she is doing NOTHING. Except sending emails to OC and then charging me $250, but with no results. I have asked to file contempt of court but she won’t. I don’t know what to do!!! This was a domestic violence situation and I just want to get on with my life. I would file it myself but I can not find a form to fill out to file. PLEASE HELP!

Hi

Having a brain freeze for a change. I have not had the following situation for many many moons.

Also having a discussion with an actuary.

DB plan, covering husband and wife, both HCE and both key. Both way past NRA/NRD and in their 70s.

Both are at 100% of pay and fully accrued in prior years. Low average salaries, in the 30k range.

My software tells me that I am failing 401a26 and actuary agrees.

I tried to use accrued-to-date method but the software does not allow me to do so. I was told that for 401a26 to use accrued to date, plan must satisfy 410b.

What am i missing/not seeing here, sorry cannot think straight today.

Thanks

Hi,

A client's advisor convinced her to start a 401k plan. She made 2 contributions to it then decided that she didn't want it. I tried to tell her that it will now have to go through the termination process but she is just demanding that her contributions be returned to her.

Am I wrong in telling that as well as she will get taxed and penalized on her distribution? Or is there another way?

TIA

One owner has 4 separate businesses, all somewhat related, working at the same location, but separate employees.  single or multiple employer plan? I'm thinking Single.

What is a Qualified Disability Benefit under IRC Sec. 411(a)(9)? An example would be appreciated. Is such a benefit considered an "ancillary benefit" that doesn't need to be "protected" under IRC Sec. 411(d)(6) or not an ancillary benefit (e.g., a "retirement-type benefit) that is protected under that IRC Section.

I'm hoping QDRO experts here might have some ideas on how to address this situation. 

FACTS: QDRO was accepted by the DB plan in 1998. In addition to dividing the interest under the plan between husband and ex-wife the QDRO required the husband to select a form of benefit providing a survivor benefit equal to at least 25% of husband's benefit under the plan and name ex-wife as the sole beneficiary of the survivor benefits. QDRO also stated ex-wife was to be treated as the "spouse" for all purposes under the plan. Plan accepted the QDRO as written. Husband retired in mid-2000s, selected a joint and survivor annuity and named ex-wife as beneficiary.

In 2019, pension plan is terminated and benefits transferred to an annuity provider. Participants were given the option of taking a lump sum upon plan termination. Husband was not allowed to take a lump sum due to the QDRO requiring he select a form of benefit with a survivor benefit. He was upset and wanted to "take his ex-wife off the pension". Plan sponsor tells them they can't do anything due to the court order (aka QDRO) and husband would have to go back to court to change it.  So...in December 2020 husband gets a court order modifying the QDRO in which both husband and ex-wife agree to remove ex-wife from the pension entirely (what?), designate a new beneficiary for any survivor benefits, and agree the remaining balance of the pension should be released in full to the husband.  Plan sponsor explains the plan is terminated and these changes cannot be made, even if ordered by a court (except beneficiary maybe). Husband and new wife are extremely upset.

ISSUES:

1.  Was the law was different in 1998? Could a QDRO put restrictions on a participant's future benefits earned after the date of the QDRO (i.e. requiring form of payment with survivor benefits following divorce)? If not, I don't believe the QDRO should have been qualified and accepted by the plan as it was written.  

2. What liability does the plan sponsor have for accepting the DRO originally? What about for not allowing husband to select a lump sum when the plan was being terminated?  

3.  What do we do now that the plan has been terminated and benefits are in pay status with an annuity provider? Any ideas on what the plan sponsor can and/or should do in this situation?

I appreciate any thoughts you may have. 

For 2020, the Owner received $ 150 above the match formula.

We are being told that since it is less than the $250 EPCRS  allows the excess to remain in the account. In other words, the   the Plan Sponsor does not need to forfeiture the  excess amount. 

The question is,  does the $150 remain in the account and then used to offset the 2021 match?  Or does the owner get the benefit of the excess contribution for 2020.

I am trying to wrap my head around the fact the owner is receiving an allocation higher than the NHCEs.   If the excess is used to offset the 2021 contribution  I could understand leaving the money in the account.   Having to remember to track the excess as an advance for 2021 could be a  nightmare.

A government 457(b) plan defines NRA as age 55.  I am trying to figure out if that age is allowed under the facts.  The employer does not sponsor a defined benefit plan, but does sponsor a Money Purchase Plan.  Under the applicable 457(b) regulations, an NRA of 55 is only allowed if age 55 is an age at which MPP participants "have the right to retire and receive, under . . . a money purchase pension plan in which the participant also participates . . . immediate retirement benefits without actuarial or similar reduction because of retirement before some later specified age."  See 1.457-4(c)(3)(v)(A). 

The MPP never has actuarial reductions. The MPP has cliff vesting after 5 years of service. The MPP allows distributions of the non-forfeitable account balance at age 45 after termination of employment.  The MPP allows in-service distributions of the non-forfeitable account at age 62.  The MPP provides for full vesting at age 65, even without 5 years of service (thus age 65 is the earliest age at which every participant is guaranteed not to have a forfeiture).

Under those facts, what is the earliest NRA allowed under the regulation cited above?  There is never an actuarial reduction in the MPP, but there can be forfeiture reductions before age 65.  Is a forfeiture  a "similar reduction" to an actuarial reduction making 65 the earliest allowed NRA?  Or is age 45 the earliest allowed NRA, because forfeiture is not a "similar reduction" to an actuarial reduction, and the participant can get their full non-forfeitable balance at age 45? 

We have a 16 year old minor who is now receiving the remaining stream of pension benefits of her deceased father (the plan participant).  There is a custodian in place to make the payments to.  Just wondering about the minor beneficiary naming their own beneficiary of their benefit in case something happens to her.  Generally, it is my understanding that custodians do not have the authority to do that on behalf of the minor.  Anyone dealt with this before? 

I have been tasked to understand/learn some pension basics.  This site was recommended to me as the authority when it comes to all things pensions. Thank you for your help.

• a one participant plan is one where there are no employees other than the owner (and spouses and partners)
  If there is an employee but they just don't meet the eligibility requirement of 1,000 hours  to enter the plan, is it still a one participant plan?
  And if that is true, then a form 5500-EZ is only required
  And as long as that one employee stays under 1,000 hours the plan will continue to be a one participant plan?
   
• if a one participant plan has an employee who has met the eligibility requirements, regardless of whether they have made a salary deferral, the plan must file a 5500-SF, correct?
  they would be a participant, just no plan balance.
   
• If the employee defers compensation in 2021 (meaning they have a plan balance) and they terminate in 2022, as long as their plan balance is in the plan do they need to file a form 5500-SF?
   
• Is it safe to say that any plan that is required to file a form 5500-SF is entitled to title 1 ERISA protection?

I'm sure I will have additional questions.  I don't want to be the source of misinformation. 

I've re-read ERISA 105, and we're debating if it's necessary to send annual participant statements (from our recordkeeping system) to participants who are fully invested in self-directed brokerage accounts.  What they are not getting from those accounts are (a) vesting by money type and (b) information about their loan balance (where applicable).  At the moment, that's all that they are functionally missing - while it might be nice to know how much of their balance might be in the deferral money source vs. the profit sharing, if it's all vested, it doesn't matter as much.  So we're thinking that if a plan is by design fully vested, then we can skip the statements; we'd still provide statements if the plan has sources subject to vesting, even if all participants are fully vested due to accruing enough years of vesting service.

As for loans... I don't see that as being a requirement anywhere, so we're on the fence about it.

Any comments, ideas, etc.?

And I know that this could or will or may change once we get new rules on lifetime income wording, as I suspect that the brokerage accounts won't put that on their statements (I will be happy to be wrong about this, though) - since many of them aren't even set up as "retirement plan accounts", why would they follow retirement plan rules?

Thanks for your thoughts.