We have a plan amending  to add the profit sharing/nonelective contribution account as eligible for in plan Roth Rollovers.  This will apply to both distributable and non-distributable amounts.  The plan only permits a participant to withdraw this money in service if they have reached the plans NRA, which is 65 plus 5 years of participation.  This in service withdrawal provision should be carried over for any profit sharing amount that is covered to a Roth Rollover.  I am being told that for amendment purposes, we can only have age 65 and not the 5 year requirement as the inservice withdrawal provision.  I am not seeing this restriction in the plan document.  Is this a regulatory restriction on in plan Roth Rollovers?  Any insight is greatly appreciated.

I don't know where else to post this.

We were introduced to an accountant in March of 2024, who was looking for a new TPA.  She has clients that needed annual reviews and 5500s, Schedule SBs, etc.

We quoted the numbers and typically wait until the clients' tax return are due before preparing our work.

Well, October 1st comes and this woman demanded that since she gave me new clients, I had to do her clients' work first.

I was paid in advance by 3 of these clients, and quoted contributions and prepared Form 5500 for all of these

The accountant pulled all this new business on the grounds that I wasn't fast enough; the clients that paid in advance demanded their money back.  

Now she is asking for the valuation reports and Schedule SBs for the others, that I had not billed, so they obviously didn't pay.

I consider any work I do as my work product, until I release it, which will then become the clients' once I am paid for my services.  I was not paid, I believe I am under no obligation to release anything, especially the Schedule SB, for which I pay my actuary for signing.

Any opinions?

If there are plan assets reverted to the employer in 13a on the Form 5500-SF, where should those be in the financial information (7-8)?  I am thinking they would go in 8d (Benefits Paid) but I could not find any guidance for this.

I have a client with a former employee who worked a half day in 2024 as a substitute.  The employee was eligible and they have a safe harbor non-elective provision.  The 3% contribution would be ~$15.  My understanding is the letter of the law so to speak requires the $15 deposit.  I have an ethical issue asking the client to make this deposit when the force out distribution will generate a fee from the record keeper (or us the TPA) that exceeds the balance of the account.

Me:  Client you need to make this deposit.

Also Me:  Thanks that is my money now as a fee.

Is there a standard practice for how to handle these types of situations?

Business owner only contributes 5% of pay.  If I do an 80% match on the first 6% of pay (plan uses Rigid Discretionary, so 6% is hard-coded), the owner gets a match of 4% of pay (80% of the 5% he contributes). There are a couple of participants who contributed 6% of pay or more.  Am I prohibitted from using a match of 80% of the first 6% OR a, I simply required to impose a cap on the NHCE's of 4%?

I can't believe I've never seen this scenario before!

It is a Solo 401(k) plan. Both the husband and wife have contributed in the past, but in the past year, just the husband. The balance got over $250K so now they need a 5500-EZ. For the purposes of the form, Part II, Questions 5, what is the number of participants and active participants?

My husband passed and I have beneficiary from with my name but the plan administrator refuses to contact me or give me any info on who got paid out if it wasn’t the beneficiary or the legal living spouse. Where can I get help? 

In 2018, participant rolled over $50,000 from an IRA to his 401(k) account.  At the time, the recipient 401(k) plan administrator believed the rollover was from a Traditional IRA.

This week, the 401(k) plan administrator learned the 2018 rollover was from a Roth IRA.  The error was discovered when the participant called and asked why he didn't have a "Roth Rollover Contribution" account balance.  Answer:  Because the plan believed the 2018 rollover was from a Traditional IRA.

The rollover account is now worth $55,000 ($50,000 rollover contribution plus $5,000 earnings)

Treas. Reg. Section 1.401(a)(31)-1, Q&A-14 requires that "the amount of the invalid rollover contribution plus any earnings attributable thereto [be] distributed to the [participant]. . . . "

Two Questions:

(1) I feel there should be guidance on how to report the distribution that will be made to the participant and I'm just not finding it.  Can anyone point to any such guidance?

(2) In the absence of such guidance to the contrary, does anyone see any issues with the following:

     (a)  Distribute $55,000 to the participant.

     (b) The plan has no idea what portion of the $50,000 rolled over amount constituted basis in the Roth IRA (and the plan administrator is not inclined to try to find out what happened 7 years ago, and wants to give the participant the benefit of the doubt from a taxation perspective).

     (c) Even though the Roth dollars have been in the 401(k) plan for more than five years, and the participant is older than 59-1/2, this is not a qualified distribution because the Roth dollars should never have been in the plan in the first place.  Accordingly, the plan will report the $55,000 distribution as consisting of $50,000 non-taxable basis and $5,000 as taxable earnings.

     (d) This is not an eligible rollover distribution.  Therefore, 10% federal income will be withheld from the $5,000 taxable earnings portion of the distribution unless the participant elects a greater or smaller amount of federal income tax withholding.

     (e)  The 1099-R will be coded as an EPCRS distribution (Code "E") as a distribution of an excess amount.

****

Any leads or thoughts would be appreciated.  Thanks.

I have one that I haven't seen before.  A university erroneously sent student loan money to a student's Roth IRA account, instead of her bank account.  The student has a student job at the university and contributes a small amount of her small paychecks to the Roth IRA.  That's how the university has her Roth IRA account on file.

The university admits it made the error by sending loan money to the IRA (they also have her personal account on file for direct deposit purposes), but states that it is unable to pull back the funds (and that its bank is unable to pull back the funds).  Naturally, although the amounts were contributed as Roth IRA contributions, the university didn't tax the loan money before it was sent to the IRA provider.  The entire gross loan amount was sent to the Roth IRA.

The IRA provider is willing to distribute the erroneously contributed amount to the student's personal bank account as an excess contribution.  My understanding from the IRA provider is that the principal distributed as the excess contribution won't be reported as taxable income to the student.  However, any earnings on the principal that will be distributed will be taxable and subject to a 10% penalty.

Am I missing anything for the student that might rub the IRS the wrong way?  The poor kid just needs her student loan money.  The university is also willing to pay any taxes that the student incurs.

When a TPA processes distributions for a retirement plan sponsor, including federal tax withholdings and deposits and related tax filings, is it typical for the TPA to use their own EIN on the Form 1099-R and Form 945?  Does it depend on whether the TPA is also the custodian and/or trustee? 

Thanks in advance!

Hi

A non-SH plan (combo with CB)

HCE defers 17k over 402g limit (under age 50), 40k in total

ADP testing is done using 40k, this is clear.

How about ABPT testing, done on 23k or 40k (need to pass ABPT for 401a4 purposes as ratio group will not work)?

The excess will be refunded sometime. Other than tax purposes, does it matter if refunded by 4/15 or later?

A company failed to process participants' after-tax elections during January 2024. Company corrected by depositing a 40% QNEC early in 2024. 

Then a handful of participants proceeded to max out their contributions, exceeding the 415(c) limit. (Basically, client let contributions continue in 2024 as if QNEC had never been made; it wasn't factored in when applying the 415(c) limit.)

Essentially, the participants would not have been owed anything if the company had waited to correct because those participants ultimately hit the 415(c) limit.

Is it appropriate to forfeit money out of the QNEC source, with the view that the correction was never required? Or do they have to fix the 415(c) limit issue by distributing the after-tax contributions?

(Side note: I always advise plan sponsors to wait until after the plan year has ended before making corrective contributions, just in case they aren't owed. However, they don't always ask.)

I saw a communication from a record keeper which provided a discretionary match participant notice template.  It seems to imply that a notice is required when any discretionary match has been funded. 

My understanding has been that this notice, due 60 days following the final funding of the match for a plan year, is only needed if the match was a "flexible" discretionary match and that this notice is not needed for a "rigid" discretionary match.

Did I miss a change in the notification requirement?

Thank you,

Tom

Hi

A Happy New Year to all of you. Thank you in advance for any insights on this.

1.  If there are only $76,000 IN ASSETS, in a veba plan. that has not had a contribution for at least 15 years , and all participants in the plan were terminated 10 years ago at least, still required to file a 990-EZ, since assets for all plans for this entity are under 250K? Also, in general is a 990 still required to be filed for Veba plans or a 5500 SF is sufficient? 

2.IF YES, must the 990 be e-filed, and mailing it in is not allowed anymore?

3. Can this Veba plsn merged with a mp plan of the same entity...(with of course properly allocating, ie prorating, the assets for each of the 2 plans annually)?

Thank you, as always, for any insights

If as part of a severance agreement, employees are given funds to purchase COBRA, is that reportable to CMS?  I understand that if a settlement, severance, etc. payment to a Medicare - eligible individual if the payment relates to past or future medical expenses, but if the settlement just includes funds to use for COBRA (we don't know whether they actually purchased COBRA or not), do we have to report?

Another question related to an earlier post -- the employer made an excess contribution to an employee's SEP-IRA in December 2024.  Per EPCRS, the financial institution returned the excess funds plus earnings to the employer in January 2025.  This employee is due an RMD for 2025.  For purposes of the RMD calculation, do you deem his SEP account balance to be exclusive of the erroneous allocation that was subsequently withdrawn (which I would do if this was a profit sharing account that received an incorrect deposit from the employer) or do you treat it strictly as a cash basis IRA balance as of 12/31/24?  To me it's logical to adjust the balance to reflect the correct accrued benefit, but I haven't found any supporting guidance for this position.

Thanks. 

IRS Notice 2024-2 provides some guidance on this. Specifically, I want to see if you disagree with my reading of Q&A L-2:

Q. L-2: If an employee designates a matching contribution or nonelective contribution as a Roth contribution, for which taxable year is that designated Roth matching contribution or designated Roth nonelective contribution includible in the individual’s gross income?

A. L-2: A designated Roth matching contribution or designated Roth nonelective contribution is includible in an individual’s gross income for the taxable year in which the contribution is allocated to the individual’s account. The preceding sentence applies even if the designated Roth matching contribution or designated Roth nonelective contribution is deemed to have been made on the last day of the prior taxable year of the employer under section 404(a)(6) of the Code.

 It seems clear to me that the meaning of this is that "allocated" in this context means "contributed." So if in July of 2025, a profit sharing contribution is made on a Roth basis, even though it is "allocated" for 415 purposes to the 2024 plan year, it is nevertheless TAXABLE to the employee in 2025.

Any agreement/disagreement/other thoughts? Thanks.

Our ESOP lays out the statutory requirements for distributions.  Our Distribution Policy has the details.  Can we literally just change anything in the Distribution Policy as long as we stay within the statutory requirements?

For example, the ESOP says we can require participant to wait until the plan year that is five years after the year of employment termination.  The Distribution Policy says we will distribute small accounts (say, $10,000 or less) in the year following separation.  Can we change the Distribution Policy to say all accounts (no matter what size) have to wait five years?  

This still complies with the statutory requirements and is consistent with the ESOP language, but is it a problem that we are treating similar employees differently (i.e. small account balance participants have very different treatment before and after the Distribution Policy change)?

Thank you!

A plan participant terminated employment in June 2024 with an outstanding loan. The plan permits immediate distributions upon termination.

• The participant received a distribution in June 2024.
• The loan was not offset against with the distribution and subsequently defaulted between September 30th and October 1st, 2024. This appears to comply with the "2-quarter rule" for loan repayment requirements & default.
• As the participant was not rehired, the loan accrued interest from the distribution date until the default date.

Issue:

The participant's 2024 1099-R includes interest accrued on the defaulted loan, even though the loan was not offset against the distribution in June.

Questions:

1. 1099-R Accuracy: Should the participant request a correction to their 2024 1099-R before filing their taxes? Is the 1099-R likely to overstate the taxable distribution due to the inclusion of interest accrued between the distribution date and default date?

2. Plan Policy and Procedures:

   • Are there any specific laws or regulations that address this situation?
   • Does the plan document or loan procedures outline the treatment of outstanding loans upon termination and distribution?
   • Is it reasonable to expect the plan sponsor to actively seek information about the participant's loan repayment intentions at the time of distribution to avoid potential interest accrual?
   • Given the plan's offset provision, why wasn't the loan offset at the time of the distribution?

Is there a requirement to provide notice to participants if a plan is not going to make a discretionary match one year?