Former Employee left in 2019,turned 70.5 in 2020.  Her first RMD was for 2020, but that was suspended.  Initially, she needed to take that one by 4/1/21.

But since she didn't have to take it, the 2021 RMD will be her "first."  Does she have until 4/1/22?  Or is is due by 12/31/21?

What I have come up with may just be me re-inventing the wheel, so if that is the case call me out on it.

I am looking at retirement in terms of having 3 'types' of money.  Tax deferred, which is the worst kind.  Money with capital gains tax.  And the best kind - ROTH.

My plan is this:

Out of the traditional 401ks that my wife and I have gotten during our life I am going to pull out 24k a year in retirement.  That number is important because with the standard deduction I will not pay taxes on it.  From there, I will pull out money out of our brokerage account, amounting to roughly 56k, which puts me just under paying long term capital gains tax.  And lastly I will pull out whatever else I want from our ROTH accounts which by their nature I do not pay tax on.

Is this a good strategy, because as best I can figure it I will pay nothing in taxes and have an income in retirement over 100k.

Hi, 

Terminated employee in DC Plan elected a lump sum and 20% was withheld as required. The 20% sat in the plan until the following plan year when it was sent to the IRS. The 80% that the employee received as a lump sum was shown on the 5500SF in the year it was received and the 20% withholding was shown on the following year 5500 SF (since it sat in the plan assets until the following plan year).  Are there potential penalties for this and can this be rectified? Thank you very much.

My wife and I have developed a new strategy for our retirement, but I have run into a bit of a snag in figuring out in what way taxes are taken out of her paycheck.

My wife makes 40k a year, and her employer offers a ROTH 401k which we are now taking advantage of.  It matches 4 percent at a 100 match%.  My wife is 55 years old.  We have decided that for the remainder of her working life she will contribute as close to the max of 26k a year that we can, which currently translates to her contributing 70% of her income to her 401k.  I make enough money to where I can cover all of our expenses and we should be able to live comfortably until retirement.  However, although I make good money (over 100k a year) my employer offers nothing in the way of benefits, so we get all of our benefits from her employer. 

The max her company will allow her to contribute is 75%.  We have no issue if she has no actual income coming into the house, and all of her money goes into her ROTH 401k. However, we do have an issue with too much money being taken out and not enough left in there to cover our health insurance.

So this is my question.  Do employers first take out tax and insurance and than use what is left over as a percentage?   So with her 40k lets say tax and insurance equals 10k a year, leaving her with 30k, of the 30k $22,500 would go to her ROTH 401k.  Or, do they take out the money first from her gross income of 40k (which would be 30k), and than subtract tax and insurance? 

I am aware of the 26k limit for her.  Or to put it more plainly, if her employer allowed a 100% contribution would they take out the insurance and tax before putting the rest in, or would she not have money left for her insurance?

Two participants took distributions in 2020.

The paperwork CLEARLY states that they wanted state tax withheld at 10% (New York).  The major carrier failed to withhold.  Participant only finds this out in February 2021 when they get the 1099-R.

The carrier told me that because NY doesn't have mandatory w/h, they just don't do it.  Even though the form, again, CLEARLY, has a section for it.

Does the participant have any recourse against the plan/carrier for failure to execute the instructions (in seemingly good order) of the account holder?

The client wanted to move to a calendar year and thus created a short plan year 10/1/2020 - 12/31/2020.  The CB document indicates 1,000 hours required for an accrual so it appears there is no CB accrual during the short plan year.

In this case, I'm assuming we still use the combined plan gateway rules, but there is no CB accrual when generating the required gateway percentage.  

I feel like I'm overthinking this so just looking for clarity.

I've found conflicting opinions. Some say yes, others say that you fail the 25% Key employee test. Seems to me the latter is correct based on a literal reading, but maybe I'm missing something, or perhaps the IRS has opined informally on this, etc...

Good morning everyone!

I just took over a client that hasn't made their required Profit Sharing Contributions (it's used in conjunction to a Cash Balance Plan).  It turns out the client hasn't made their Profit Sharing Contributions since 2017, and there are also receivables from prior to that.

The client didn't take the deduction on their tax returns, if that matters.

Has anyone had this experience and how have you handled the lost interest since these contributions are clearly late?

Thanks everyone!

Company B was acquired by Company A in an asset sale.     During the acquisition, Company A created a new Company, named it Company C (different and distinct EIN from company A) and this is the company now paying the former employees of Company B.

Company B previously sponsored a plan and intends to terminate it. 

Company C would like to establish a new plan for its employees only and want to rely on 410(b)(6)(C) transition relief.  All the documents I have read on this issue talk about the current existence of a Plan and that Plan having met coverage prior to the transaction, thus the ability to reply on the 410(b)(6(c) rules.   But no plan existed for this new company. So I don't think that the client can rely on the 410(b)(6)(C) transition relief.    Is my logic correct?

Any guidance that can be provided would be greatly appreciated.

Employee A quit the day before PY 2020 began.  It was not until a week into PY 2020 that the company paid A for his unused vacation pay.  The plan has a 401k safe harbor 3%-of-pay featyre.  Does A accrue 3% on his unused vacation pay paid in 2020?  

I have a 403(b) plan with a 1/31 year end.  HCEs are excluded from the fixed matching contribution formula, but after performing the ACP test, it appears that HCEs could be allocated a small matching contribution and the tests would still pass. The Employer wants to amend the plan to allow such discretionary matching Employer contributions which would apply to HCEs for the Plan Year Ending 1/31/21, as well as a true up provision for the fixed matching contributions that are already in the document that would only apply to NHCEs.

Does this seem okay if the Employer signs the amendment before April 15th?

Am hoping those with more DB plan experience may be able to help.  Details are below but the basic questions are:  (1) how easy is it to get waiver of excise taxes for a late 204(h) notice if you provide participants the additional benefits as if notice was timely sent and (2) if that's not easily done, can you rescind or revoke prior plan amendment (freeze) and just provide additional benefits due through present,  amend / terminate with proper notice now, and avoid excise taxes where that ends up a cheaper fix than paying the excise taxes?

We have a new client with large cash balance plan.  They adopted an amendment to do a hard freeze last year.  The 204(h) notice was sent to participants 23 days before the freeze took effect.  It appears the actuary thought the 204(h) rules only required 15 days' notice and was unaware large plans had to provide 45 days' notice.  This is not a situation where any exception to the general 45 days' notice appears to apply.  Employer relied on actuary for advice and guidance on the freeze but is not necessarily looking to recover against the actuary.  Just trying to address and move on.  This has come up because the company is about to be sold and the plan will be terminated in connection with the sale, etc.

If I read the 204(h) rules and regulations applicable on or after June 7, 2001 (and Sal's interpretation), it appears the freeze amendment can stand but significant excise taxes will be assessed at the rate of $100 per day per missed individual for each day of noncompliance.  Where the notice was sent to all applicable individuals on the same day but was sent 22 days late, that would result in an excise tax of $2,200 x the number of individuals receiving the notice.   Assuming round numbers of 250 people, that would add up to $550,000.

Perhaps an argument could be made to waive the excise tax if the Treasury Department determined that the employer did not know the failure existed and had exercised "reasonable diligence" to meet the notice requirements?  I've not researched but a complete miss on the basic timing rule would seem tough to argue reasonable diligence although the employer had no clue of the issue until now.  At the very least, hopefully the annual $500,000 cap on "unintentional failures" could apply?  Welcome any thoughts or suggestions on arguments on a waiver or possible reduction of excise taxes and how that normally plays out.  For example, does one have to submit a PLR requesting waiver due to reasonable cause and not willful neglect to get clear IRS response / waiver or is it possible to get relief for an "unknown failure" (See ERISA Outline 3B.644--5.b.1) without having to actually submit a PLR reasonable cause request?  Part of our issue here is needing to reach clear result and clear up for the buyer in the sale without leaving open issue and future audit risk.

In addition to the excise tax issues above, what if the employer is willing to concede the late notice was an "egregious" failure such that the freeze cannot take effect until everybody has at least 45 days notice?  For example, what if the employer gives everyone an extra month of benefits beyond the original freeze date to make up for the 22 days the notice was late?  It seems like that is possible under the current rules as an alternative to any argument the attempted freeze is completely ineffective?  And if the failure was truly "egregious" it seems like that extra benefit accrual is arguably required?   As  I understand the rules, however, giving folks the extra month of benefits would not eliminate the excise taxes as those  apply in addition to the potential for accrual of additional benefits?  See ERISA Outline 3B.666.   Seems that means you cannot simply "buy your way out" of the excise taxes (at least without some waiver by the IRS) in these situations by making up benefits over the missed notice period?

In this case, the extra month of benefits would only be ~$50,000 but the excise taxes may be $500,000.  Perhaps there is an argument the plan could stick with the original freeze date and avoid not having to give the extra month of benefits (i.e., they could argue the failure was not "egregious" under these facts) but the excise taxes still apply.  If they have to pay the excise taxes, the additional month of benefits is not that huge of a deal though.  Which brings me to our other question--can the plan just revoke, rescind, or otherwise completely ignore the prior 204(h) notice and attempted plan amendment / freeze as ineffective, give everybody the additional benefits that would have accrued through the rest of 2020, and thus avoid paying any excise taxes?  Is that possible or are they clearly stuck with the excise tax issue in all cases because of the attempted freeze?  If they went ahead and honored the additional benefits accruing during the last part of 2020 as if no freeze had been implemented, that should be significantly cheaper than the excise taxes due given the number of plan participants.  They could then go ahead and proceed with a termination of the plan quickly now before anybody accrues anything in 2021 and come out cheaper than paying the excise taxes.  That doesn't seem exactly right but they would much prefer to give extra amounts to participants than in excise taxes.  Thanks.

Internal Revenue Code § 45E provides a tax credit for a portion of a small employer’s (up to 100 employees) qualifying expenses to establish or administer a new retirement plan.

About what’s new:  An employer cannot qualify for this credit if, during the three-taxable-year period that immediately precedes the first taxable year for which the credit otherwise could be allowed, the employer or any member of any controlled group that includes the employer (or any predecessor of either) established or maintained a qualified employer plan for which contributions were made, or benefits were accrued, for substantially the same employees as are in the qualified employer plan for which the credit otherwise could be allowed.

How does this work with a multiple-employer plan—whether an association retirement plan, some other “closed” MEP, an “open” MEP, or a pooled-employer plan?

For this credit, does it matter that the plan is not a startup?

Or is it enough that the employer’s participation under the plan is the first time the employer provided any retirement plan for its employees?

Hey Dave - sorry if this has been dicussed before but I'm just noticing...what is the "member reputation" figure that appears by our names with a plus sign and a blue number?  Not that I'm vain mind you, but mine is rather low and I wasn't sure what is driving it 🙂

Hello -- A client with a profit-sharing plan adopted a restatement of its pre-approved plan document by the April 30, 2016 deadline but implemented a retroactive effective date (2015). I submitted a VCP application seeking approval of a retroactive effective date.  In addition to the limits on retroactive amendments under Internal Revenue Code Section 401(b) and applicable regulations, the pre-approved document itself states that the effective day must not be earlier than the first day of the Plan Year (here, a calendar year) that the restatement is adopted. I know that the remedial amendment cycle allows retroactive amendments for "disqualifying provisions" but my understanding is that those provisions have their own effective dates, but the plan as whole should still have an effective date as of the year of adoption.

 The VCP agent said that there was no issue because the restatement was adopted by the April 30, 2016 deadline and within the two-year window provided in Announcement 2014-16, but he also could not provide an authority as to the overall retroactive effective date. So I'm not sure I agree, but I don't want to belabor the issue either. I mostly just want some assurance that if there is a subsequent audit of the plan, that agent won't disagree with this agent. 

Does anyone fall on one side or the other as to this analysis? Thanks so much!

As part of some due diligence work, I am reviewing the invoices for a qualified pension plan that is severely underfunded for the past several years. I am seeing billing for PBGC filings and actuarial valuation work that are normal parts of plan administration and can be paid from pension assets. However, I also see some payments for annual pension meetings to discuss valuation work. Hiring an actuarial firm is one thing, but would anyone consider paying travel expenses for the actuarial firm to attend a meeting a part of plan administration? My thought is that a travel expense should be paid from the company account and not plan assets. Looking for other opinions. Thanks!

Participant works over one year and 1000 hours in that year, but terminates prior to reaching age 21 so never becomes eligible to enter the plan.  That former employee is then rehired after age 21. would that employee enter plan immediately?

Plainly read, it would appear the secure act amended 401(b) to allow a sponsor to adopt a profit sharing plan after the end of the sponsor's tax year. But what if a sponsor adopted a 401(k) plan in 2021 to be effective in 2021, but decided to amend the plan to be effective in 2020 (prior to the tax return deadline) so that they could make a profit sharing allocation for 2020.

Kosher or not Kosher?

Employee participated in 2 different company plans and ultimately exceeded 402(g) limit for the prior year.

Excess deferral was distributed prior to 4/15 of the next year.

Are there one or two 1099-R's reported?

If there is one, I believe it is in year of distribution with Code P (referring to prior year).

If there are two, in addition to the one above, one for the prior year with Code 8? Alternatively, is the W-2 corrected?

Or as I believe, there is just one 1099-R issued for current year and in this case, employee provides tax preparer with letter describing the excess deferral distribution.

Development company with around 50 employees in California. All of the employees would be considered NHCEs as none of them have any company equity and do not make more than $120k (Besides the CEO). All other employees would be NHCE because of this. Would like to set up a new comparability profit sharing program where the employees who did well on their projects (All NHCE) can be set to one "group" on the new comparability profit sharing plan and have the highest % rate. The HCE (CEO) would be set to the lowest % rate (1%) and thus, the remaining other employees would meet the gateway test if they were set as 0.35% (1/3 of HCE). Would this setup satisfy the cross-testing requirements along with any other requirements? Basically looking for a method to utilize profit-sharing but provide as much % possible to the employees excelling at their projects and providing as close to 0 as possible for other remaining employees (Which would include the CEO). Any advice would be appreciated!