I am in an employer 401(k) plan and borrowed money from the plan. I had $250,000 in plan, took a $25,000 loan and later prior to making any payments I changed jobs. I did not repay the loan and it was offset against the plan assets, the net amount of $225,000 was rolled into a new employers 401(k). I received a Form 1099 showing the net rollover amount which was coded 'G'. I also received a Form 1099 for $25,000 as both the distribution amount and the taxable amount, meaning the loan is now taxable to me in 2019. I understand that I have until the due date of my 2019 Form 1040, including extensions to come up with $25,000 and put it into the new plan or into an IRA so in effect the entire $250,000 would be deemed rolled over and no taxable income would result since all of the plan had been rolled over.

My broker said I could take another loan from the new 401(k) plan(which received the net amount of $225,000)for $25,000 and put that $25,000 into another 'Rollover IRA' and that would qualify as a repayment of the loan or would be considered as part of the original rollover preventing tax due on the plan loan.

This does not seem correct as the original plan loan was not repaid, the plan was not put back into it's original position of $250,000, the 2nd $25,000 was borrowed from the net rollover and the net rollover is pretax income which I read cannot be used to repay a plan loan.

May I hear from those who have any thoughts on this situation, if it will be considered as a complete rollover, even if the $25,000 came form the pre-tax net rollover funds?

Thanks for your help.

Jay

Hello,

I have attempted to search for an answer to this question on this site and elsewhere and found nothing - apologies if I am missing the obvious. It seems very strange to me that a sale of all assets requires a pass through vote, but a sale of all stock that accomplishes effectively the same thing does not. Is there a good reason for this I am missing?

My other question is if there is relevant law clarifying which plan participants a trustee is expected to act in the best interest of, and the meaning of best interest. A sale that multiplies the stock value is obviously in the financial interest of those close to retirement that likely have the most shares. The further from retirement an employee is, the more uncertain this is. The sale will certainly provide a short term financial benefit, but the long term effects depends on what the future growth of the company would have been without a sale. I saw a claim that in a situation where an offer was made for 10 times the ESOP's value where the purchaser built in a plan to lay off all of the employees (who are plan participants), a trustee is required to ignore the layoff aspect because they are only acting in the best interest of plan participants, not employees. I can see the logic, but this seems like a very peculiar definition of "best interest" and "plan participant" that stretches credulity.

First time poster here, didn't see any pinned rules to avail myself of - please let me know if I have made any faux pas!

Thanks!

I'm generally aware of the IRS position on "linked" nonqualified plans where a formula benefit under one NQDC plan would offset another NQDC plan, i.e., that they generally view any formula under a 409A-covered plan that can offset or change the amount, time, or form of payments under another 409A-covered plan as impermissible.

What about where one plan is (or both plans are) exempt from 409A? 

For example, an employee has a short-term deferral exempt from 409A that provides a lump sum of 10 times his current base salary of $250,000 if he is still working at age 65. The payment is reduced dollar-for-dollar by the amount of any other vested nonqualified plan benefits payable to the employee. Say the employee is age 64 when the employer gives the employee a fully vested 409A-covered plan that provides 10 annual installments of $225,000 each starting at age 65. The employee would receive a payment of $250,000 upon reaching age 65, then $225,000 a year for 10 years.

I don't see this as falling under the IRS's prohibition on "linking" nonqualified deferred compensation plans. For example, Section XI.B of Notice 2010-6, generally addressing the issue, speaks only in terms of a "nonqualified deferred compensation plan" linked to "another" "nonqualified deferred compensation plan." There's only one 409A-covered "nonqualified deferred compensation plan" that is not impacted by another one.

Alternatively, say you have the same lump sum agreement but it's offset by the value of any vested 409A-exempt stock options outstanding at age 65. The options can be exercised for 10 years following termination. In that case, neither one is subject to 409A, but the parties may arguably in a sense "defer" the lump sum by allowing the employer to give the employee options before reaching age 65 that the employee can exercise any time over the 10-year period. 

Apart from the linking, any argument that this is a change to the time/form of payment of the lump-sum benefit? Or an initial deferral of a short-term deferral? I don't see any explicit authority for this, except maybe general anti-abuse. 

Would appreciate any insight.

We have a client where a partner wants to deposit his $63k 415 limit  in January of 2020. His comp will be way more than the max and we'll for sure pass all testing when the year end arrives. Question is that because he is a HCE, can we "fund" his employer contributions before the NHCE's are funded? Or is the only requirement that all employer be funded by tax return due date?

I want to make sure I'm not crazy. 409A DEFERRED income is not included in W-2 compensation for 401(k) plan purposes, right? We've got a payroll company including these deferred wages as eligible income. I could understand it if the employee was receiving taxable PAYMENTS of 409A amounts previously deferred, but this makes no sense at all for income currently being deferred.

Agree/disagree? Thanks.

Question #1 - Under the provisions and requirements enacted by the Secure Act for 2020 and beyond, if an IRA owner dies in 2020 or after, and was past their RBD at the time of their death, must a designated beneficiary (who does not qualify as an eligible designated beneficiary) continue to take an annual RMD beginning by 12/31 of the year following the death of the owner, but then also deplete the account by the end of the 10th year after the death of the owner?  Internal discussions in my workplace differ, some saying the RMDs are suspended at the owners death, and that the beneficiary can let the balance sit untouched for the 10 year period. Others, believe RMDs must continue but account must be depleted at 10 years.

Question #2 - If an eligible designated beneficiary or designated beneficiary (if the answer to #1 above is yes)  fails to take a RMD, by the required date after the owner's death, is it merely a failed RMD subject to the 50% excise tax/penalty for the shortfall, or do their payout options default to something else, like the 10 year rule? 

Does the RMD change for the Secure Act require an amendment to adopt for Plans?  I know things like the $5,000 distribution for a newborn requires an amendment, but I haven't seen anything where it says if the RMD changes also need one or if it's just an automatic change.

Thanks!

We have seen many circumstances where an employer has an existing rabbi trust and now has a 2nd or 3rd deferred compensation plan that they want to add an account for under the existing rabbi trust.  Is this an acceptable amendment?  Would consent of the existing beneficiaries be required?

Participant term'd  December 2019.  The company wants to now give her a severance package of $30,000 and wants her to be able to defer from it.  My inclination is she cannot defer from it.  They want to instead now say it's a bonus, but I still say no based on this wording under Compensation: The payment would have been paid to the Participant prior to a severance from employment if the Participant had continued in employment with the Employer.    Which it would not have been.

Every audited plan I have seen used accrual accounting where you would indicate receivables on the schedule H. Can an audited plan use cash basis accounting for 5500 purposes?

If a plan has a Simple and then converts to a 401k plan, can they still use the tax credit under the SECURE Act for the new 401k Plan?

I used to work at Wells Fargo, and have about 200k in 401k over there, took a new job at BofA.

I haven't explored much fund returns in BofA yet, any suggestions if its better to move or leave there.

Under the SECURE ACT, can an "actively employed" over-70 1/2 who has been receiving RMD for 4-5 years make IRA contribution starting in 2020? Would they have to take their RMD and then turn around and contribute to an IRA?

401(k) Plan has failed the ADP test for 2015, 2016, 2017 and 2018.

We have a Safe Harbor 401(k) Plan client that currently has a three percent nonelective contribution and wants to change to a safe harbor match contribution.  I referenced the EOB and it referred me to Notice 2016-16.  Under Notice 2016-16 Mid-year Changes to Safe Harbor Plans and Safe Harbor Notices, I see where this might be possible but don't find any specific examples that address this scenario.  I feel I could argue either way - for or against and would like input from anyone that may have some insight/advice?

I have a question regarding the retirement account for my company which is a Profit-Sharing Plan, 100% employer contribution. I have a former employee who is 100% vested in the plan though has not worked for me for several years. He had elected to keep his money in my profit-sharing plan, without additional employer contribution. At this time, this former employee is electing to have his distribution rolled over to an IRA account. By definition in the SPD, the plan year is 1/1 to 12/31. The valuation date is the last day of the plan year (12/31). The valuation is calculated annually, and this is usually done around October of the following year. Right now, we have the numbers for the valuation up to 12/31/2018. I know that the profit-sharing plan gained money in 2019, but do not have those exact numbers calculated yet. The employee is asking for a partial distribution based on the 12/31/18 valuation and then a total distribution for the 2019 gains once that number is calculated (around October 2020).

What are the rules pertaining to this type of distribution? I do not want this former employee to miss out on the profits earned in 2019. Is it possible to do a partial rollover for the 12/31/18 amount and then give him the final 2019 profits once this is calculated? Thanks.

Single participant with no spouse or dependents dies with large balance in HRA account.  Employer is subject to Davis Bacon Act so funds cannot revert back.  Employer contributions to HRA are held in trust.  HRA plan document does not provide for payment of dependent medical expenses after the death of the participant.  What do we do with the funds in the participant's HRA account after his death? 

Hi to All,

I have been asked to query the group as to whether you fill in the "paid preparer" section of the Form 5330, whether you maintain a PTIN for this purpose, and whether you use the PTIN for any other purpose.

We very seldom prepare this form and every time, these questions come up.

Your advice is appreciated in advance.

It was determined (after year-end) that a large traditional 401(k) plan had a partial plan termination in 2018.  The plan operates on the calendar year.  Additional match contributions (plus earnings) were calculated and deposited to the plan in late 2019 as a correction for the 2018 partial termination. 

The plan administrator had originally calculated refunds to HCEs for failed ADP/ACP.  Now the PA is saying that the plan had to be re-tested  for the 2018 plan year after the correction for the partial plan termination, and additional refunds are due to the HCEs. 

Should the compliance testing for 2018 be re-run as a result of the corrective actions taken for the partial plan termination?

Thanks!