dragondon

*Correction earnings were not distributed till mid April.

If the refund was made prior to 3/15 but the earnings were not distributed until mid March does the company need to pay excise tax on the earnings amount or is excise tax only on the principal amount?

If there was an ADP failure and the TPA refunded the refund amount prior to 2 ½ months after year end but didn't refund the earnings until 3 months after year end, do you have to pay excise tax on the earning portion that was not distributed prior to 2 ½ months or is excise tax only due on the refund amount?

If a plan fails an ADP test what are the corrective actions that can take place? 1. I am seeing a lot of answer that state that you have two options if you complete this prior to March 15th (2 1/2 months) of the following year. 1 - you can distribute excess contributions to HCES, or 2 - you can provide a QNEC to NHCES in the amount necessary to raise the ADP to the percentage necessary to pass the test. 2. Then I am seeing other answers that state if you want to distribute excess contributions you must use the one to one method where you must distribute excess contributions to HCE's and then also contribute a QNEC of that same amount to NHCE's. Does the second option only apply if you did not complete either the distribution of excess contributions to HCE's or provide QNEC's to NHCE's prior to March 15th of the following year, or is that paticular corrective action always going to need to include the QNEC in the same amount if you choose to use the distribution of excess contributions method?

Hypothetically lets say that instead of doing what they did they refunded the HCE prior to March 15th 2023 from plan assets in the amount determined using the leveling method amount. Then they provided a 1099R for the refunded amount and the earnings amount that were both taxed in the current year. In that case there would be no need to pay excise tax is that correct? And would that have been the correct corrective action that should have taken place?

A plan ran APD testing for plan year 2023 and found that the plan would not pass the ADP test. On march 15th 2024 the plan used the leveling calculation method to determine a refund amount. Then the plan made a benefit correction for this amount which corrected the W2 to reflect the amount added back to their taxable wages. The plan then sent a 1099 R with distribution code 8 for just the earnings since the other amount was processed through payroll. Should the following have been done to correct the failure instead: Prior to March 15th correct the deferrals of HCE's to ensure that the ADP test was passed rather then provide an amount using the leveling method? If an amount was provided via the leveling method should that amount have been taxed in the year 2024 rather then added back to their 2023 W2?

We are using the CASH method of accounting. Therefore the plan had zero assets held on 12/31/2022. In this case is a 5500 form required even though there were no assets in the plan?

The assets were deducted from their pay in 2022 but didn't hit the Trust account until 2023. So are the assets considered to be in the Trust when deducted or when they actually hit the Trust account?

If a plan was created in December of 2022 but no assets were in the plan until 2023 are there any filing requirements with the IRS for the year of 2022?

If a bonus is paid out to a participant after they have already entered the plan, but the period for which the bonus compensation was earned was before they had entered the plan is this eligible compensation to defer?

Is it legal to supply the quarterly benefit statement on the users participant dashboard and not send them via mail or email? Or must all the quarterly benefit statements be sent to the email provided on the account?

The investment adviser of one of the 401k's that we manager would like to use his solo 401k retirement funds to invest in a startup. If he has no existing connections with the start up and no other investments in it is this an allowed transaction with their 401k funds or would this be considered prohibited?

So then for profit sharing contributions what tests need to be run then? From here it looks like we are fine with the ADP and ACP tests because of the safe harbor but then what happens when we add a profit sharing contribution, what test need to be run for that?

For a Safe Harbor Plan that contains a Pro Rata Profit sharing element does the ADP ACP and Top Heavy testing only relate to the Pro Rata profit sharing piece or does the entire plan now need to be tested for the ADP ACP and Top Heavy even though some of the contributions were made under safe harbor? I have the same question for a New Comparability Plan. Does the entire plan now need to be tested for the ADP APC Top heavy and cross tested even though some of the contributions were made under safe harbor?

Is it common to amend a plan at year end to add in a profit sharing arrangement? Or is it okay to have a profit sharing arrangement in the plan that is not used? For instance we have a discretionary profit sharing arrangement for Pro Rata profit sharing on the plan but they do not do a pro rata contributions. If the plan also makes a safe harbor match then would they still not need to do compliance testing? Or does it lose the exclusion from compliance testing with safe harbor because it is an option for them to profit share?

Obviously there are so many things that go into making a plan top heavy, including how much each participant contributes, who participates in the plan, and which participants contribute more ect. But is there a threshold that is common practice in the industry to say if you have x% or more HCE's than NHCE's then you should use the Top Paid Group?

Is there a cut off on how much can be contributed before it is not longer exempt from testing for safe harbor non-elective? I know for safe harbor match anything above 6% will then need to be tested for ADP ACP and Top Heavy so I was not sure if the same rules applied for Safe Harbor Non Elective

If we have a company that is currently a LLC taxed as a S corp but they are changing their structure to be a LLC taxed as a C corp is there anything specific that we need to keep an eye out for in their plan? I assume we need to make an amendment to update the tax structure and the EIN for the plan sponsor. Outside of that is there anything in the plan design that needs to be updated if a tax structure is changed? They don't want to change anything else in their plan such as vesting, eligibility, ect.

Is a enhanced safe harbor match (6%) still exempt from top heavy and ADP and ACP testing?

Yes @Peter Gulia they are GP's of the fund they manage that has the employees. If the company is not a corporation shouldn't they be able to take an owners draw and defer from that? Or if they earn self-employment income shouldn't they be able to defer from that? If they take an owners draw can they defer from the owners draw or are all contributions from an owners draw considered after tax? If they earn self employment income can they defer directly from the income and this does not have to be after tax? In these instances are distributions for the GP's considered the same thing as owners draws?

I have a client who has 8 employees, 6 of which whom earn a salary and 2 of which who get distributions from the fund each month as their compensation. The distributions are not W-2 compensation. Is there any way that these 2 employees can contribute to a 401k sponsored by the employer? Is there anything on the plan design that would allow for this compensation to be considered qualified compensation for their 401k? If that is not the case is there anyway that they can contribute on an after tax basis or since they technically are not earning any income and since a person cannot contribute more to their 401k then they earn in a year are they unable to add to this 401k?

In the plan accounting, are qnec and qmacs considered the same as profit sharing? So for instance if for non elective contributions we say you must be employed on the last day of the year to qualify for a non elective contribution would that also apply to qnec and qmacs? So in essence are qnec and qmacs also considered non elective contributions and follow all the same rules in the plan doc as a non elective contribution?

Is there a way in the plan doc to cut off the need to look back to the beginning of the company to determine eligibility. For hours of service can we say you have to complete X hours of service within the last 5 years to be deemed eligible? I know there is the option for specified months - hours of service, but this still does not seem to take away from the fact that we would have to look back to the start of the company to determine if anyone ever met these requirements in case they are hired again. We are trying to find a way to not have to look back to the beginning of the company in cases where people may be rehired to determine if they completed the eligibility requirements before.

If they don't receive a QNEC or QMAC then could this not make it pass the ADP or ACP since they were participants during the year?

I believe that you should be able to set up a solo 401k just as you would any other 401k but wanted to make sure that the automatic enrollment feature was available and that then you could also receive the government tax credit for this?