ejohnke

@Peter Gulia I'm glad you mentioned that. I was going back and forth on if legitimizing the distribution made it an eligible rollover distribution and therefore no longer subject to the early distribution penalty. @R Griffith This plan is already at brokerage accounts and the Custodian doesn't seem to want to assist with any part of the correction. I get the impression that renaming the Roth IRA is NOT an option.

CB Zeller--> EXACTLY what we are trying to do for them. We simple need to fix the operational failure they currently have. We can do a retro active amendment to allow for an any age in-service distribution for the wife's distribution. She has more than enough vested employer contribution to cover the amount. But she is not age 59.5 and would be subject to the early distribution penalty. The husband has substantial funds in his rollover source in the 401(k) plan, which are available for distribution at any time. I think his money movement is okay and he will not be subject to the early distribution penalty even though he is also under age 59.5. Am I missing anything that might prevent the early distribution penalty for the wife? An early distribution penalty seems contradictory to the penalty's intent since they moved the funds from one investment account to another and didn't actually take any cash.

This client isn't looking to reverse or recharacterize the funds. They really do want the pre-tax funds to now be Roth and intended to pay the taxes. The funds weren't eligible to leave the Plan. This transaction was supposed to be an In Plan Roth Conversion. They should have rolled into a Roth 401(k) account inside the Plan...not a Roth IRA outside of the Plan. I am struggling with the Custodian to return the funds to the 401(k) Plan since they never should have left.

I have a client with a solo 401(k) plan. Upon the recommendation of his CPA, he converted about $400,000 of pre-tax plan monies to Roth. The problem is that instead of moving the funds to a Roth account within the 401(k) Plan the funds were moved to a traditional IRA, then converted to a Roth IRA, where the funds currently are being held. The taxation for 2025 is correct and the funds are still invested. We explained to the client that this was an ineligible distribution and the funds need to be returned to the Plan, adjusted for earnings. When they reached out to the Custodian to request that they needed to "undo" it all, they stated that they can't move the Roth IRA funds to a Roth 401(k) account because Roth IRAs can only roll into Roth IRAs. Any suggestions or insight on how to get the Custodian to correct the error? Outside of "undoing" it, what corrective options do they have?

I just want to make sure I am understanding the rule correctly. Facts: Plan doesn't currently allow Roth deferrals Owners have SE Income 2 owners are 50+ and will defer up to their catch-up limit Employees have W-2 wages No employees are 50+ No employees have FICA wages greater than $150,000 They are possibly moving from brokerage accounts to a Platform in 2026, and will likely add Roth deferrals at that time. They would prefer to no allow Roth until they are at a platform because they will have even more accounts to move. This Plan is not required to add Roth deferrals NOR remove Catch-up contributions right now because they don't have anyone that the Mandatory Roth Catch-up applies to, correct?

We have a new plan we are setting up as profit sharing only in 2025. They will be adding deferrals/SH Match effective 1/1/26. In an effort to stream line things, can we add this in the initial Plan document (indicating that the CODA portion isn't effective until 1/1/26) or do we need to do a separate amendment to add this?

Thank you for the insightful responses. In this specific case, the plan only has 4 participants; two owners, a spouse and 1 unvested employee. The participant in question is actually one of the plan fiduciaries. His wife is in a memory care facility and unable to cognitively sign the spousal consent form. He has power of attorney for all medical and financial decisions. The participant and his wife only have 1 daughter (whom he wants to list as his beneficiary) and he has already established a trust to care for his wife if something happens to him. Upon reviewing the Plan Document, it appears to give discretion to the Plan Administrator.

I have participant who would like to name his daughter as his primary beneficiary on all retirement plan related accounts. The participant's wife is so impaired she is unable to execute a spousal consent on the beneficiary designation. The participant has Power of Attorney for all purposes regrading his wife. Is this sufficient for the spousal consent section of his beneficiary designation?

Looking for some guidance...In 2023, the IRS added Part VIII "IRS Compliance Questions" to Form 5500-SF. We are filing a late 2021 Form 5500-SF using the DFVC program. Since we have to file this on the 2024 Form 5500-SF, do we need to complete these questions that didn't apply to the Form 5500-SF in 2021?

No additional limit like the 6% for Safe Harbor Match, correct?

Are there any regulations limiting the amount of compensation used in a fixed match formula? We have a client wanting to do a match of 100% on the first 6% of deferrals, then 50% on the next 2% of deferrals. Thus allowing for a 7% match on 8% of compensation.

Thanks for the input. I understand that this isn't an ideal situation, but we are trying to work with the client and get as many of their "wants" into the document as possible. This Plan historically has had low turn over, and no LTPT, due to the nature of their industry. They are on a platform that is tracking initial eligibility and we are tracking/allocating their integrated profit sharing allocations for them. Since the profit sharing allocations only happens at the end of the year, I don't expect a significant increase in administrate work. Most times the new entrants will either receive a Top Heavy allocation or a profit sharing allocation.

Is it possible for a Plan to use different subsequent eligibility computation periods for different money sources? For example, a Plan would like to do 1 year of service, with 1,000 hours, for the deferrals and safe harbor match, but do 2 years of service with 1,000 hours for profit sharing. They would like to "switch to plan year" to calculate subsequent eligibility computation periods for deferrals and safe harbor match, but use anniversary of hire to calculate subsequent eligibility computation periods for profit sharing. Is this possible? What additional testing would the Plan be subject to?

Can a participant have a racehorse as an alternative investment in a 401(k) Plan? A participant would like to purchase part of a racehorse using their 401(k) account and then hold the ownership in the Plan as an asset. Other than keeping all of it "at arm's length" and watching for obvious prohibited transactions and possible Unrelated Business Income, is there anything preventing this type of alternative investment from being held in a 401(k) Plan?

In this case deferrals were not withheld. What happens when we add an auto enrollment layer to this issue? The auto-enrollment wasn't initiated by the custodian until 4/1/24. In order to calculate the 2/1-3/22 MDO, what deferral amount(s) would we use?

We have a new plan, effective 1/1/24, with deferrals effective 2/1/24. There were SIGNIFICANT delays with the Custodian and deferrals couldn't actually start until 3/22/24. What is the appropriate way to correct this issue?

I have received a copy of their plan document and it looks like they need to give 30 days notice to the lead employer of their intention to withdraw from the MEP and they are free to establish a spin off plan. Are there any issues doing this mid-year? Can the spin off plan have a 1/1/24 effective date with deferrals starting 7/1/24? How are the two partial years handled for 5500 purposes?

We have a potential new client that is unhappy with the MEP that they joined 1/1/23. They would like to leave and become a standalone plan. How does a plan leave a MEP and become a standalone plan? Is this possible to do mid-year?

We have a client that was using a Custodian that allowed for participant loans to be repaid using ACH. The Plan permits a terminated participant, making payments via participant ACH, who has elected to defer receipt of a final distribution, to continue making scheduled installment payments on the participant's outstanding loan. When the Plan document was restated as a Post PPA document, the ACH/terminated participant repayment loan provisions were not maintained. Since 1/1/22, the Plan has not been operating in accordance with their written loan policy. (They continued to allow for ACH/terminated participant repayment because it was never their intent to remove this provision. The Post PPA loan policy change was a Scrivener's error.) We are thinking about doing a retroactive amendment to return the ACH/terminated participant repayment loan provisions to the Post PPA document. Is this an appropriate correction? It almost seems too straightforward. Am I missing something?

When a Plan chooses to allow brokerage accounts, is it acceptable for the Plan Sponsor to expect the participants to get them a copy of the statement(s) at the end of the year? Should the Plan Sponsor be receiving a copy of each individual statement monthly or at least quarterly? What are the consequences if they are not keeping copies themselves?

Thank you for the information. The Plan document states that they will do a discretionary match, but the Plan Sponsor has been operating it with a 3% SHNEC for at least the last 8 years. They want to continue providing a 3% SHNEC, so it sounds like a VCP with retroactive amendment is the way to fix it.

We have a 403(b) Plan that restated its document in 2018. The restated document has a discretionary match while the 403(b) Plan has been operating with a 3% Safe Harbor Non-Elective for 8+ years. This restated document is not at all how the plan was being operating at that time, nor how it is currently being operated. The Plan has been failing to follow the plan provisions for an extended period of time, but they would like to continue with the 3% SHNEC. They do not want a discretionary match. What is the process to correct this error?

We were recently hired to takeover as TPA for a plan. It is a mess. The previous TPA was sold in 2021 and the Plan was left to fend for itself. In the time since, the Plan Sponsor has retired most of the previous owners. The remaining owners and associates are all pretty new to the Plan. Outside of knowing where they funds are currently being held, they have little information on their Plan. Through some digging they were able to locate a plan document. It is a PPA document. None of the Trustees listed on this PPA document are with the company currently. Our office is working to get them a new document, but I am unsure about the exact process we need to take to keep everything in good standing as we correct everything that has happened over the last 2 years. Can we take their PPA document and restate it on our provider's Post PPA Document? What should we use as the effective date? Who should be listed as Trustees? They also changed the Plan Sponsor and Plan name in 2023. Does this change need to be made as an amendment after we have restated the Plan? Any assistance/guidance is greatly appreciated.

I have a client that set up everything for a 401(k) effective 5/1/22. It is unclear how much, if any, communication was provided to employees about the start of the 401(k) plan. The Plan Sponsor didn't actually start deducting any deferrals and nothing has been paid to the Custodian. They are interested in moving forward with it finally. What are the consequences of having a plan in place, but not using it for that plan year? What are the consequences of having a plan in place and not telling participants about it? How would you recommend that they move forward?

I have a client that utilizes individual brokerage accounts for their participants' investments. The Plan requests beneficiary elections from all participants, as does the Custodian. The participant files a beneficiary election with the Custodian, but NOT the Plan. If the participant dies, does the beneficiary election on file with the Custodian stand or would you default to the plan document provisions?