The 401k Plan Sponsor wants to change when participants can make deferral changes from monthly to annually.  The plan document allows for it.  Are there any consequences if they make that change?

Why would a company offer safe harbor for nonunion employees and not union employees?

I'm new to 401K's and was hoping to get some confirmation or correction on a plan design.

I understand that the 3% SH nonelective contribution must be immediately 100% vested. My question is, if the plan also has a QACA does that remove the 100% immediate vesting requirement and change it to a 2 year cliff requirement?

Thank you for any guidance.

I am horrible at searching the message boards.  Is there a number at which point taxes do not need to be withheld from a distributtion? 

Reason... Bob was paid out but the financial advisor didn't wait for everything to settle and now there is $150+/- still in the investment account.  I am happy to generate a 1099-R if it is acceptable to liquidate the account and send it all... no withholding. Is that ok?   Is there a magic amount when taxes are not required to be taken?  Just be sure it is reported via a 1099-R?

Thanks  

I have a client who is the owner of a business - who also provides consulting service as a separate company to said business.  He is owner of both businesses.

Business number 1 is set up as a Safe Harbor Non-Elective plan with 10 employees.

The client wants to contribute his max deferral (comp $350k) of $23,500.00 plus receive his 3% NE SH of $ 10,500.00.  So for business 1 - he would have contributed (or received from the company a total of $34,000.00.

In business 2 - the client is the only employee - he wants to set up an After Tax contribution in the amount of $36,000.00 so he can max his total contributions at $70,000.00 for the year.

He also earns a separate $350k in this business.

So...After Tax contributions are tested in the ACP test of business 2 - but since the plans do not have to be aggregated for ACP Testing - what is to stop him from doing this?  It seems like he could just skip providing any Employer Contributions to business 1 (outside of the SH NE 3%) without failing any testing.

What am I failing to see?

Thanks!

Owner and one employee have 3+ years of service.  Owners spouse is hired 1/1/2025 and there are no other employees.  If I disaggregate for testing, the Otherwise Excludable portion of the test passes by default so I can give the spouse whatever percentage of pay I want.  The owner's comp is $250K.  I can give the spouse say $85% of their $50,000 or so and as long as my total contributions are wthin the max deductible, I should be good.

This is seems to good to be true but it seems to me that it will work. Anyone think I am wrong here?

Client has a 401 (k) Plan with 3% Safe Harbor.  Owners are not going to contribute to 401 (k) in 2025, till the Plan Terminates. Both Highly Compensated and Non Highly Compensated will continue to defer.

Is an amendment required?  Material Modification?

Have a good weekend.  Thank you.

DPSRICH

Have a 45 Participant Plan terminated effective March 2024. 6 of the Participants could not be located. Plan Sponsor sent the funds to Inspira, formerly Millenium Trust. Accountant says that each of the 6 Participants mus receive a 1099-R, even though technically they have not received the money. I agree that the money is out of the Plan, BUT is Inspira responsible for the 1099-R when the money is paid to the Participants.

Any help[ is greatly appreciated.

DPSRich.

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.)