A non-spouse inherits an IRA and will pay the taxes.

After taxes, can they roll into a Roth IRA?

Thanks 

So I just retired - 7 months ago - I have a QDRO from my 1st marriage - to ensure my retirement didn't get held up I sent a copy of my Divorce decree and QDRO to OPM - I just got my OPM booklet explaining my benefits and all that jazz about my annuity payment but what I didn't see is the explanation part about the payment portion to my ex. Since I've sent everything to OPM and they have it, I feel like I've done everything I need to do and if my ex wants to find out why he isn't getting anything it's up to him to contact OPM and ask. Any pointers?

We set up a 401(k) plan with a 1/1/1999 effective date, first deferral was made in 2020 and according to the TPA, no 5500s have ever been done.

File initial return with all $0?

Just thinking out loud here, trying to figure out if my logic is okay....

CB plan is going to cut the contribution credit for the two principals for 2025, which they accrue upon 1000 hours of service.

Plan is getting its restatement for Cycle 3 in the next couple of weeks.  

Typically we'd have the restated doc effective 1/1/25.  That date is, of course, before they'll get a 204(h) notice.

I'm torn between:

a)  So what - give them the 204(h) notice now, so that they get 15 days warning that their benefit rate will drop.  If they happen to hit the 1000 hour mark in the middle of March, then they'd be prohibited from the cutback in the formula and still get their old percentage of pay.

b)  Make the Cycle 3 doc effective March 31, 2025, instead of 1/1/25.  That way they definitely get the notice before the effective date of the drop.

Obviously (b) is okay, but (a) seems like it could potentially still be okay and if it does, at least there's not some kind of weird rando date in the plan's history.

Thoughts?

--bri

Is the Section 310 change to top heavy minimums (don't have to give them to participants who are otherwise excludable) an option, or is it just The Way It Is?  I'm not seeing a clear answer; too much "may" and not enough "will" or "must".

I'm looking at a plan with immediate eligibility for deferrals but YOS/semi-annual entry for SHNEC and PS, and is top heavy.  Before, I would warn them that yes, you are saving the 3% as safe harbor in the first year or so you hire someone, but you'll have to give them 3% as top heavy, but they liked the vesting aspect of that so refused to change.  Now... are the new hires right out entirely (there is no PS this year)?  Or is this something that they will get to make a decision on?

Thanks.

Plan was proposed to be terminated in a standard termination but company since filed for a bankruptcy.  Per applicable regs, lump sums of more than $7,000 are no longer permitted, but plan can pay out lump sum benefits of less than $7,000.  If a participant has more than $7,000 in their benefit account, but requests a lump sum payment and is willing to forfeit anything in excess of $7,000, can the plan sponsor pay out that lesser amount?  

I'm working on testing a plan right now. It's a newcomp / cross-tested plan. With our proposed profit sharing to max out the owner, it fails general nondiscrimination testing. I'm in over my head here with the correction methods for this; My understanding of the failsafe coverage provision is that, if elected, it provides a rigid method for who to allocate contributions to in order to pass testing, and if NOT elected, an 11g amendment must be made in order to pass testing. That said, the plan document says that all employer contributions are discretionary... Can they allocate money to employees otherwise ineligible for profit sharing because it's discretionary? 

Another note: Who needs to recieve a 5% gateway allocation in order to use cross-testing? My instinct would be that it's only employees eligible for profit sharing, however our testing software seems intent on putting anybody eligible for the plan as a whole (including people eligible for deferral but not profit sharing) on the minimum allocation gateway test. 

Below is an excerpt from some form QDRO Procedures (Relius), which is part of a Retirement Plan. I am trying to understand how this provision is compliant with ERISA:

Quote

1. Suspension of Participant distributions or loans. If the Plan Administrator is on notice (verbal or written) regarding a pending domestic relations action (e.g., a divorce) and has a reasonable belief the participant's account may become subject to a QDRO, the Plan Administrator may suspend processing the participant's distribution or loan requests pending resolution.
2. Removing hold on the account. After placing a hold on the account, the Plan Administrator should notify the participant of the hold on the account. In order to remove the hold, the Plan Administrator should request the Participant to provide written confirmation that a court will not issue a QDRO with respect to the account; such as a property settlement agreement awarding the entire account to the Participant.

Below are the some of the problems that I see with this provision. Am I missing something?
 

1. Freezing a Participant’s Account Based on Mere Knowledge of a Divorce (Without a DRO)
•    ERISA’s QDRO Rules (ERISA § 206(d)(3)): ERISA’s anti-alienation provisions generally prohibit plans from restricting a participant’s rights to their benefits unless a valid DRO is received and under review for qualification as a QDRO.
•    DOL Advisory Opinion 2002-03A: The Department of Labor (DOL) has stated that a plan administrator may suspend distributions only when there is a pending domestic relations order that is being reviewed to determine whether it qualifies as a QDRO.
•    ERISA and DOL Guidance: Under ERISA § 206(d)(3) and Internal Revenue Code § 414(p), a plan administrator may place a temporary hold on distributions IF there is notice of a pending domestic relations order (DRO) that could become a qualified domestic relations order (QDRO).
•    The phrase "on notice (verbal or written)" is problematic. While a plan administrator may place a hold upon receipt of a DRO, simply having a "reasonable belief" that an account may be subject to a QDRO (without an actual DRO) could be seen as an impermissible restriction on a participant’s rights.
•    DOL guidance (Advisory Opinion 2002-03A) suggests that a temporary hold is allowed only if there is an actual pending domestic relations order and it is being reviewed for qualification as a QDRO.

2. Placing a Hold Based on "Reasonable Belief" That the Account "May Be" Subject to a DRO
•    Allows a hold solely because the plan hears of a pending divorce, even if no DRO exists. This creates an impermissible restriction on the participant’s rights because ERISA does not authorize a plan to preemptively place a hold based on speculation that a QDRO may be issued.
•    Problems with "Reasonable Belief" Standard:
o    The language allows the Plan Administrator to act based on a subjective belief that the account "may become" subject to a DRO.
o    This exceeds the authority provided under ERISA, as there is no legal basis to restrict a participant’s account based on speculation or indirect information.
o    It also creates potential fiduciary risks, as the administrator might inconsistently apply this standard or unfairly restrict a participant’s access to their benefits.

3. Problems With the Release of the Hold
•    Requiring a participant to provide written confirmation that a court will not issue a QDRO may go beyond ERISA’s requirements.
•    The burden is on the Plan Administrator to determine whether a QDRO exists, not on the participant to prove that a QDRO will not be issued.
•    A participant may not be able to obtain such confirmation, as courts do not typically issue "non-QDRO" determinations.
•    Instead of requiring a participant to provide a property settlement agreement or written confirmation, the Plan Administrator should instead remove the hold after a reasonable time period (e.g., 18 months per ERISA § 206(d)(3)(H)) unless an actual DRO is received.
•    The Plan Administrator could also release the hold if there is written confirmation from both parties that no DRO will be submitted.

Does SECURE 2.0 Mandatory Roth Catch-up Section 603 apply to the 403(b) special 15 year of service catch-up rules? I have not read anything that says it doesn't, but haven't specifically seen or heard anything that says it does. 

Any reason why the new rules would not apply to the special 15 year catch-up? 

edit: confirmed Section 603 only applies to age based catch-up.

Thanks

I have an owner-only plan (no employees) that maxes their 401k & profit sharing contribution ever year. So  $66,000 intended to be contributed for 2023, and $69,000 has been contributed for 2024. We are now discovering that the 2023 deposit of profit sharing has not been made (401k deferral was), and also discovering that the profit sharing deduction wasn't taken on the 2023 tax return. Is there any way to clean this up so the client gets the 2023 deduction, or is it too late?

Hello.  I have a safe-harbor matching 401k plan where the employee satisfied his one year of employment on 11/3/24.  The adoption agreement defines eligibility as 1 year of service with semi-annual entry dates of 1/1 and 7/1.  This would enter him on 1-1-25.  This created confusion with the plan sponsor and, evidently, the payroll company because they deducted a 401k contribution from his December paycheck.

I am thinking they need to refund the $170 and issue an amended W-2 for 2024.  Is my understanding correct, and if so, does anyone have a better recommendation?

Does anyone know what may happen in an IRS audit if they choose to leave it there and not amend the plan to permit it?  The deposit was made in January 2025.

Thanks in advance for your help!

Profit Sharing Plan has pooled investments.  There are 2 real estate parcels - one valued at $1.4M and another at $750K.  The parcels are valued each year by an appraiser.  The remaining plan assets, $4.2M, are in a brokerage account.  The owner died - his balance is $1.5M.  There are 58 participants in this plan.  I've advised the client for years that having 1/3 of total plan assets in real estate is an issue and they should consult an ERISA attorney.  They haven't, and now here we are.  The beneficiary is his wife.  The 2 kids of the deceased owner now own the company.  Their first request was to allow the beneficiary to roll the real estate to an IRA and roll the remaining balance in cash.  Because this is a pooled account, each participant owns 1/58 of the real estate.  Allowing the beneficiary to roll the real estate to an IRA seems out of the question.  The new owners were talking to an investment banker friend who said he had a client with a similar situation.  The employer sent a form to each participant asking for their permission to forgo their ownership in the asset and allow the beneficiary to take the real estate.  This doesn't seem right.  Does anyone have any experience with this?    (The client contacted the ERISA attorney I referred them to.  It might take awhile for the attorney to weigh in on this so I thought I'd put this out there to the TPAs in the trenches.)

Thanks!

Participant asked for deferrals to be taken as Roth, but it was done as pre-tax.  Started May 2023 through last week when they left.

What is the remedy for that?  In plan Roth rollover?

The thing that gets me is it was the participant who was in charge of entering the deferrals into the payroll system.

403(b) plan, but that shouldn't matter, I think.

I have a non-profit that has moved to an HSA plan for the first time.  They have about 8 employees, but only 3 are full-time and receive benefits.  Two of those 3 are a married couple that founded the organization, and the husband is an officer.  Now, the company is going to make employer contributions to the HSA.  So, the one employee is going to get an amount based on her single coverage.  The wife is getting a family plan contribution AND the husband is getting an individual amount.  This didn’t pass the smell test for me…doesn’t this violate comparability rules?  Or could the company allow employee pre-tax contributions through a cafeteria plan, and avoid the comparability rules?  I read you can only differentiate contributions in one of three ways 1. Full-time vs. part-time. 2. HDHP coverage class 3. HSA-eligible vs. noneligible.

The husband makes ~$115k and the wife makes ~$72k.

I know officers/owners of a company can receive different benefits than the employees, but does that work only when there are employee contributions offered/required through a cafeteria plan?  If they offered family contributions + a single contribution to any current (none) or future married employees, would that be OK?

Thanks!

a small independent pharmacy.  Is it a subject to Title IV or not?

Calendar year 401k plan has a discretionary annual match with a last day allocation condition and DDR waivers, does not have 1000 hour allocation. Client would like to change mid-year to a payroll based match - when we amend the plan to remove the last day and add payroll period (not sure if it is retroactive or prospective) but do we need to protect the DDR waiver group? Technically since last day has not been met nothing has accrued. Thanks!

We have a number of clients in FL that were affected this past summer by the hurricanes.  Following Hurricane Milton the IRS released a notice that extended prior relief to ALL of FL until May 1, 2025.

Recently, we filed 2 of our plans using the information from the notices as a special extension.  Both plans were penalized for late filing.

Since we have more to file, I am curious if anyone else has experienced this and what you have done to avoid those erroneous penalties?

This COLA chart was designed with smaller business owners in mind.

In addition to the indexed limits in Notice 2024-80, certain enhanced and additional limits are also shown for smaller businesses (under 26 employees) and larger employers (26 to 100 employees).  The footnotes are important and provide additional clarification. Please let me know if you have any suggestions for next year's chart! 

A rollover chart is contained on page 2.

Uploaded new file on February 26 to include the new bankruptcy exemption amount ($1,711,975) for IRAs (excluding most rollovers).

Hope this helps. Enjoy, ``Gary

COLA_RO_2025-ENHANCED.pdf

ahhhh..the ever complex compensation determination.

Plan Comp is W-2 Comp.

W-2 Pay includes the following:

Box 1:

• Regular Pay of $70,000 (excludes 401(k)
• Health Insurance Expense of $20,000
• Total Box 1 = $90,000

Box 3, 5:

• Regular Pay of $70,000
• 401(k) of $30,000
• Total Box 3,5 = $100,000

I believe then for Plan purposes, pay is $100,000, but was hoping to confirm that the $20,000 is not added back into that.

I enjoy reading posts on this terrific blog,, however, I find that I cannot get answers to questions that are of vital concern to me and many of my lawyer colleagues, and that are destined to result in issues for Plan Administrators as well.  The topic - the allocation of pension and retirement plans between divorcing couples via a QDRO or similar Court Order. In 2022 there were 673,989 divorces in the United States.  There are about 163,000 ERISA qualified pension and retirement plans in the US plus another 12,000 plans governed by other sections of Federal law (FERS, CSRS, Military, to name a few), plus State, County, Municipal plans that operate pursuant to local laws and regulations, and International plans. 

I have been trying since Secure 1.0 to determine how Secure 1.0 and now 2.0 will interface with defined contribution plans where historically the Alternate Payee's share has paid in the form of an immediate lump sum either: (i) tax free to the Alternate Payee's IRA or other qualified retirement plan, or, (ii) in the form of a taxable distribution directly to the Alternate Payee, but no 10% early withdrawal penalty.

The main question is whether or not the election by a Participant in a defined contribution plan of an annuitized payout pursuant to Secure 2.0 during the marriage can be superseded by a subsequent QDRO entered by a Court pursuant to State law directing a lump sum payout, and how will that payment be computed and paid?    

It is not clear to me whether or not a Participant can make such an election prior to retirement.  And if it is possible for the Participant to purchase an annuity during prior to retirement and during the marriage without notice to or consent by the spouse.  Timing of events is critical to the rights and responsibilities of the parties. Federal preemption is an every present sword of Damocles.  Plan documents and options vary and usually rule.  

I participate in quite a few other QDRO oriented blogs and nobody seems to have any answers.  Am I the only one that is worried about this?  Or is it just the OCD required to afflict all members of the Bar.    

Since pension and retirement benefits represent one of the two highest value assets owned by the parties (the equity in their home being the other), that is an important matter. In my world the tide is rapidly receding exposing the ocean floor, reefs and fish, and the birds and animals are heading for high ground.  Watch the 2012 movie "The Impossible".  Spoiler alert - DO NOT watch the trailer. It is a great movie.     

David Goldberg