We have a participant who passed away in 2024. He has both Traditional and Roth balances in the 401(k) plan. In the past, he has been taking RMDs from the Roth source.

For 2024, which balance would we use for RMD calculation (just the 12/31/2023 Traditional Balance or 12/31/2023 Total Balance - that includes the Roth) and can the RMD for 2024 be distributed from the Roth source to the beneficiary? The reason I ask is because I know that for Roth IRAs, the RMDs are required after the person's death, but is that the case for deceased 401(k) participants with Roth balances?

According to this link from the IRS, it seems like only the Roth IRAs have RMDs for deceased participants: https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs#:~:text=Roth IRAs do not require,required from designated Roth accounts.

In my opinion, only the participant's 12/31/2023 Traditional Balance would be considered for RMD calculations and the RMD must be taken from the Traditional source. Would you agree?

I have 4 missing participants with the following balances:

$95.76     $52.07     $14.90     $39.56

We use Penchecks to process our 1099-Rs  and we also pull the distribution fee that we charge from the participant's distribution.  After all distribution expenses are deducted each of these payouts will have a negative balance. 

Can I zero these accounts out with expenses? or do I need to open missing person IRAs and get the expenses somewhere else?

We file one 5500 for a 403(b) plan.  It is long frozen.  I asked for their IRS Opinion letter.  They provided me one with an approval date of 8/7/2017.  This does not seem current.  Does anyone know?  I requested this from the plan sponsor.  But I believe I need to tell them to contact TIAA to make sure this is the most recent.

Thank you,

Tom

Got a call today from an eye doc who owns 100% of his practice (which will be an LLC taxed as a sole prop starting in 2024; previously it was an S-corp where he owned 100%), looking to put in a new plan.  He also owns ~21% of a surgery center where he performs all his surgeries (so I would say that, yes, he refers his business there).  This immediately made me think of ASG.

Doc is convinced that this isn't a problem.  "The other doctors/owners of the surgery center have plans that cover only their practices and not the surgery center employees, so I'm sure it's fine."  Without meaning to disparage any other potential TPAs working on those plans, I think I'll look at it with fresh eyes...

So, we don't have a management ASG.  Good.

For a B-Org, I don't know the relative revenue numbers, but I'll assume that if my doc owns 20%+, it means his revenue is at least 10% of the practice.  I suppose you could argue if the surgery center employees perform services that were 'historically' done by a doctor's office; I might argue they were historically done at a hospital.

I think the A-Org argument is even stronger, as they are definitely 'regularly associated'.

Oh - and of course doc owns his building as a R/E LLC... and his brother owns a lens shop in the building.  "I don't specifically refer people there; they can go anywhere... but I tell them it's easy to go right across the hall to get their prescription filled."  I think that is separated enough to not be a problem.

I know that the best answer is "consult with an ERISA attorney", and that will be my ultimate recommendation.  But I want to at least see if it can be ruled out so we don't waste our efforts and resources going down that direction if it's clearly NOT one.  Is that what I've got here?

Thanks.
 

I have a plan that has terminated.  The owner retired and sold the business.

Preparing the final 5500. 

Do we need to change the address on the 5500 to the home address of the plan sponsor or leave as is (which is the company address)?

Thoughts?  Thank you!

Hello,

One year in practice ERISA attorney here, so please, go easy on me.

FACTS

In the financial services industry, three individuals, A, B and C each maintain their own entity in which the individual has 100% ownership.

• A's LLC - maintains no plans. 
• B'S LLC - maintains a SIMPLE 401K in which only B participates
• C's Corp. - maintains a SEP in which C and spouse participate. 

Each entity has a 33% interest in the Main LLC. A, B, and C, through their entities, provide financial advice to clients of the Main LLC. Main LLC then pays A, B and C's entities 1099 income. Main LLC has five employees, none of which are A, B or C or their spouses. The employees of Main LLC have never been given the opportunity to participate in either the SIMPLE or the SEP.

CONCLUSIONS 

I've concluded that under the ASG rules, Main LLC is a FSO and A, B & C entity's are A-Orgs. Thus, Main LLC and A, B & C's entities are an affiliated service group. 

Client is the Main LLC, and its goal is to provide a retainment plan for the Main LLC and its employees. Potentially later adding in a health plan. 

My conclusion is that B LLC's SIMPLE 401(K) AND C Corp's SEP have both made significant errors and must make a VCP submission. However, how can they correct with the improperly excluded employees?

ERRORS

SIMPLE 401(k)

1. Maintained during the same year as another retirement plan. Contributions must stop immediately. 
2. Main LLC employees improperly excluded. Make corrective contributions to employees.

SEP

1. Main LLC employees improperly excluded. Make corrective contributions. 

How can both Plans be corrected? Do you undo the SIMPLE contributions/correct deferral deductions then terminate the Plan? 

Immediate Eligibility - plan excludes seasonal employees

In the "good ole" days, employer only had to worry about enrolling these employees if they worked 1,000 hours now they have to contend with the 500 rule. The problem is seasonal employees leave and come back on a regular basis

Hired 5/1/2023 

1. Need to look at hours worked from 5/1/2023 - 4/30/2024. Participant worked a total of 650 hours. However he left and came back twice during this period

2. Plan switches to plan year  - The plan then measures hours from 1/1/2024  to 12/31/2024 - assume during this period he works 650 hours.

Participant would be eligible to enter 1/1/2025.

Am I looking at this correctly?

The fact the employee left and came back during the initial 12 month period, does his hours pre termination count towards the 500,or does the counting start all over?

I thought I read LTPTE rules do not include the break-in service rules or concept.

Thanks

Suppose you have no common law employees and 3 unequal partners, and the theoretical "cost" for each of the partners is $50,000, $75,000, and $150,000. I'm not a DB person, but I seem to remember from a VERY distant past that the "default" is that the total cost is allocated to each partner in proportion the her/his partnership interest, but that this can be modified if there is a special allocation formula in the partnership agreement that provides a different result.

Is that still true (if indeed it was ever true)? And if true, can it be modified each year as necessary due to changing demographics?

Muchas Gracias.

Hi Everyone,

I have a client who offers an enhanced SH Match ($1 for $1 on the first 4%).  They then stack a discretionary match on top of that ($1 for $1 on the next 2%).  It almost works like a two-tiered match, but it's the same $1 for $1 formula.  Ascensus is now telling them they can't do that.  Ascensus is saying that the discretionary match must be made on the first 2% of deferrals, meaning if someone defers 1%, they get the 1% SH match and 1% discretionary match.

Here's what we've been told:  The 4 and the 2 are not added together. If an employee defers 4%, they get the full 4% Safe Harbor Match and the 2% Employer Match. If an employee defers 1%, they get 1% Safe Harbor Match and 1% Employer Match. If an employee contributes 6% they get the 4% Safe Harbor Match and the 2% Employer Match. If they defer 7% or above, they get the 4% Safe Harbor Match and the 2% Employer Match.

Is that right?  The plan sponsor is not allowed to choose to match percents 5 and 6 only on a discretionary basis?

Any help is appreciated!

Company has to give people "retro pay" going back to 2022.  Do they need to take deferrals from those?  Do they need to include that income for the 2022 and/or 2023 ER contributions?

It's a 403(b) Plan, and the document excludes all post-severance compensation.

But it this post severance pay?  It should have been paid way back when.  It's not like a trailing commission or a bonus that was genuinely paid post-severance.

Your thoughts are apprciated.

Has anyone heard of the IRS's new "Retirement Plan Burden Survey" sent to randomly selected Plan Sponsors?

https://www.irs.gov/statistics/rpbsurvey

I haven't ever encountered an actual question on this. Most of the pre-approved documents I've seen contain a provision that "Reclassified employees" are excluded for employer contributions (but not for deferrals unless it is a Church) UNLESS the employer elects, either in the AA or in an Appendix, to INCLUDE one or more categories of "Reclassified employees." My assumption is that such employees are excluded, but not EXCLUDABLE for coverage testing, etc. 

Agree/disagree?

I have some vague memory that these provisions were instituted due to Microsoft or similar situations, where employees who were treated as independent contractors subsequently were determined to be common law employees.

We have a client looking to purchase 100% of the equity interests of an LLC that is currently disregarded for tax purposes. In the course of diligence, we discovered that the LLC is party to two agreements under which it provides deferred compensation to each of two employees. The agreements were not drafted with 409A in mind and so are neither structured to be exempt from or clearly compliant with 409A. We are currently evaluating the extent to which we can argue that the agreements are operationally compliant with 409A. Based on the language of the agreements, we cannot take advantage of any 409A exemption.

The agreements include a change in control as a payment trigger. We understand that, even though the 409A change in control rules (payment trigger and permissible termination rules) are only explicitly written to apply to corporations, the IRS has indicated that these rules apply by analogy to entities taxed as partnerships. See, e.g., Notice 2005-1, Q/A 7; 70 Fed. Reg. 57,930, 57,948, Proposed Preamble VI(E). Is it permissible to apply these rules by analogy to a disregarded entity as well? That is, is it permissible to take the position that a 409A-compliant change in control is triggered when 100% of the equity interests of a disregarded entity are sold (to a non-related entity)? Or, to be compliant with 409A change in control rules, must the change in control be triggered with respect to an entity that is taxed as a corporation or partnership?

Any thoughts are appreciated - thanks!

One person solo 401k was terminated  and assets were rolled over middle of Dec 2023. At the end of December, a small  dividend was posted. It was rolled over to IRA on Jan 2nd 2024. This was for a business that was closed. 

I understand a final form 5500 ez needs to be filed for 2024 selecting short year plan. Answering questions regarding number of participants and asset totals at the beginning and end of the years, not sure what to select. At the beginning of Jan 2024,  balance that was on the account was only the small dividend that posted on Dec 29th.

Total plan assets -  is the beginning of year total the amount that was first rolled over in Dec 2023 plus dividend? Or is it the dividend from January? I know ending balance is zero. 

Was the participant still an active participant at the beginning of the 2024? Since plan was terminated in 2023, what would be the correct answer? 
When answering Contributions received from employer and participant - are these amounts for the entire time the plan existed? 

Thank you for any feedback. Hoping to get clarification soon since the form is due today. I would appreciate any comments. 

One person solo 401k was terminated  and assets were rolled over middle of Dec 2023. At the end of December, a small  dividend was posted. It was rolled over to IRA on Jan 2nd 2024. This was for a business that was closed. 

I understand a final form 5500 ez needs to be filed for 2024 selecting short year plan. Answering questions regarding number of participants and asset totals at the beginning and end of the years, not sure what to select. At the beginning of Jan 2024,  balance that was on the account was only the small dividend that posted on Dec 29th.

Total plan assets -  is the beginning of year total the amount that was first rolled over in Dec 2023 plus dividend? Or is it the dividend from January? I know ending balance is zero. 

Was the participant still an active participant at the beginning of the 2024? Since plan was terminated in 2023, what would be the correct answer? 
When answering Contributions received from employer and participant - are these amounts for the entire time the plan existed? 

Thank you for any feedback. Hoping to get some advice since it’s due today. 

Mr. X has his own IRA, is receiving RMDs on that, and is receiving distributions as a beneficiary of an inherited IRA from his father. 

He passes away in 2023. His wife gets part of both IRAs and his niece gets part of both.

Someone decided it was ok to combine the personal IRA proceeds and the inherited IRA, and set up one IRA for the spouse and one for the niece. Is that ok? I'd think that the inherited IRA has to continue at the payout method set up, so if the spouse claims the new commingled IRA as her own, that would be stretching out the inherited IRA payments longer than they otherwise should be. The niece's part would probably be ok under the 10 year rule although I'm not sure what the remaining payout period was on the inherited IRA so maybe not.

I appreciate any thoughts. I'm not sure I've seen a situation with the death of an inherited IRA beneficiary but it doesn't seem like you should be able to ignore the original payout method on it.

For an employer who files a Schedule C and has a few W-2 employees. Is the plan deductibility limit for employer contributions (employer's net Schedule C + w-2) * .25? 

Does anyone have any information on this? 

Just a curiosity.

Plan had an extension filed, and lo and behold they filed 5500 by original due date, with form indicating 5558 had been filed.

Not that this is a particularly important question, but would the SAR due date be 2 months after original due date, or after extended due date?

We file one 403(b) 5500.  It is a TIAA 403(b) plan document.  I assume the plan sponsor should have a copy of the Opinion Letter for 5500 purposes?

Thanks

So, corporation A purchases 100% of corporation B in a stock sale. Both corporations sponsor a 401(k) plan. 2 weeks after the sale, they now decide to look at the plan issues.

So, clearly a controlled group now. Corporation A crediting service with Corporation B, etc., etc.

Corporation A wants to now terminate Corporation B plan. But this brings in successor plan rule. How is this mess typically dealt with?