Kattdogg12

So, every day I find something that I thought I knew and now question my entire life. Most of our safe harbor plans we write with no hours or last day requirement for the new comparability profit sharing to allow for flexibility (they have to get the gateway anyway for SHNEC). I am now questioning a safe harbor match plan with new comparability PS. We sometimes don't give the PS to HCEs (spouses, non-owners) and terminated employees. As long as it passes, we figure it's ok. I went down a rabbit hole today with chatgpt and he/she/it told me that if the SPD is explicit in saying they will receive a PS, then they have to receive it. This is what the SPD says: Discretionary Employer Contribution formula. We will decide each year how much, if any, we will contribute to the Plan. Since this Employer Contribution is discretionary, we may decide not to make an Employer Contribution for a given year. We may decide to give a different contribution to each eligible participant under the Plan. The Employer Contribution may be determined as a percentage of compensation or as a dollar amount. We will inform you of the amount of your Employer Contribution once we determine how much we will be contributing for the year. Employer Contributions. Under the Plan, as amended, you do not have to satisfy any additional allocation conditions under the Plan. Thus, you will be entitled to share in any Employer Contributions we make to the Plan if you satisfy the eligibility conditions applicable to Employer Contributions regardless of how many hours you work during the year or whether you terminate employment during the year. If this is a SHM plan - do we have to give a PS to terminated participants OR HCEs as long as we pass the required testing (401(a)(4), 410(b), TH)? I Thanks!

Many if not all of our clients that utilize this are self employed, so there's no pay to be withheld from. But that is something I had never thought of. Thanks for bringing that up.

I believe it's because they don't need or want the tax deduction for the company. They make the deposit and then immediately convert it to Roth and it doesn't affect their W-2/Sched C or K-1. On a few of these it was because their wages were enough to go up to the max 415 limit but not enough to fully take advantage of the 404 limit. So, they do the max def, PS and then the rest is after tax. For example, comp is $80,000 - then they can only have $20,000 in employer and wouldn't be able to max out the 415 limit. But they could do $31,000 in def, $20,000 PS and $19,500 after tax to get to $77,500. We have a few that are using the employer designated Roth but again if their wages are not enough, then they can't max. So, going back to your comment above, if there were no deferrals - could the after tax be funded for the full 415 limit PLUS catch-up or because there is no pretax/roth, it's limited to $70,000 for 2025?

Our firm has a lot of owner only so we tend to have alot of mega Roth conversions. I can't seem to find a definitive answer on what the limit is when the plan is ONLY doing after tax -> Roth. I've read alot of places that if you are 50 and over, then the limit is $77,500 for 2025 but the examples always include deferrals/Roth. What about when it's solely after tax? I read an AI response that said if it's only after tax, then the limit is just $70,000 because after tax is not subject to 402(g): Elective deferrals = pre-tax 401(k) deferrals + Roth 401(k) deferrals (salary-reduction contributions subject to the 402(g) limit). After-tax (non-Roth) contributions = a different bucket under §415(c), not subject to 402(g), and not elective deferrals. Thanks!

Hi, we have a client with a Simple plan that is considering replacing with a safe harbor 401(k) plan. We *think* that's not possible for 2025, because we would've needed to terminate and replace by 10/1 - and it's too late for a 30 day notice. Are we thinking correctly? Alternate option we were thinking is to open a profit sharing only for 2025. We are getting conflicting information on whether you can have a PS only at the same time as the simple. We searched online and came up with this, but aren't sure of the accuracy: Yes — allowed, but operationally awkward. Carefully decide whether to (A) keep the SIMPLE and add a separate profit‑sharing plan (two plans to administer) or (B) terminate the SIMPLE mid‑year and adopt a consolidated 401(k)+profit‑sharing plan (requires 30‑day SIMPLE termination notice and adherence to SECURE 2.0/IRS Notice 2024‑02 procedures). thanks!

We are running a projection for a plan with permitted disparity and trying to max out the owners. Is it possible to max out two owners if one maxes out before the other? One's deferrals are less than the other, so they can receive a larger profit sharing. HCE #1 $350,000 comp $23,500 Roth $21,000 6% SH Match - if we give $25,500 PS - this is 7.29% HCE #2 $350,000 comp $18,500 Roth $18,500 6% SH Match - if we give $33,000 PS - this is 9.43% I ran this through chat(k) and the response was below: By sizing profit-sharing so that HCE #1 reaches $70,000, you establish a uniform 7.2857% profit-sharing rate. Participant #2 therefore also receives $25,500 of profit-sharing, bringing his total contributions to $62,500. He cannot reach the $70,000 cap under the same allocation formula. Under a four-step permitted-disparity profit-sharing formula, both owners’ allocations derive from one uniform banded schedule. Once we max out #1 at 7.29%, is that what HCE #2 must receive? There are also two NHCEs - so this also affects what they get - if we can give #2 up to $70,000, then I assume their % is based off the higher number.

I have an email that I saved from Charles Lockwood (RIP) from 2013 where I asked a silver support question about waiving for a participant by name due to being let in early. His reponse: "There is no limit on the ability to retroactively amend the plan to waive the eligibility requirements based on the intent on the ER. As long as the EE is an NHCE, you can amend the plan to waive participation for the specific individual, regardless if the ER intentionally allowed the EE into the plan". I always took his word as gospel to be honest.

Hi Lou! Yes, it is top heavy, but everyone is deferring, so receiving a safe harbor match that covers that. I reread my post and I guess I wasn't entirely clear - sorry about that. The example I gave above is what was calculated. I think the owner should only be receiving $5,313, which is 1.54% of $345,000. They gave the owner $8,548, which is 1.54% of comp + excess comp. I think if they don't give at least 3% in that first step, then they don't get to bring in the excess comp yet. Am I wrong thinking that?

Hi, I am reviewing a profit sharing allocation and I have a question with regard to the four step SSI formula. This allocation is not enough to go beyond step 1. I feel it should just be pro-rata based on compensation, which is step 1 (3% of comp). But the person who performed the calculation gave the owner pro-rata x comp + excess comp. Ex: comp 345,000 x 2.48% = 8,548 (excess comp is 210,119 (168,600 x .80 = 134,880 next dollar, then 345,000-134,881 = 210,119), so 345,000 + 210,119 = 555,119 x 1.54% = 8,548) EEs: 27,000 x 1.54% = 415.80 etc I have an excerpt from the ERISA outline book but it only covers when you don't go past step 2 or 3, not 1. But the example they give with not going past step 3 is you do pro-rata based on the comp for that step (which is comp + excess comp). Step 1 is just comp. Thanks!

I cannot believe this - but I have TWO more clients that have had this happen. One informed their payroll company and asked for the W-2 to be corrected and they told her it was too late. So I sent the link to the IRS website for the second option to correct for 2025. I just have a couple of questions operationally: I assume I count the deferrals as Roth as they were intended to be although the 2024 W-2 shows as pretax (this throws off my balancing to the W-2s, which drives my OCD crazy). When the payroll company adds to the 2025 W-2, I assume it's only added to Box 1 because it's already in Box 3 and 5 for 2024, correct? Otherwise, they would be paying SS and Medicare twice. This will throw my numbers off for 2025, so I guess I just have to make notes that Box 1 will be overstated by the Roth amount. Any suggestions? Thanks!

Thanks Artie, I guess the IRA custodian is requiring all of it to be returned, but you are right the Roth should have been the only portion that would have to be returned. And I agree with the Roth not being factored in but because it's all in a traditional IRA, to the custodian it's all pretax (we know how hard it is to work with IRA custodians to correct issues). I did misspeak above - the 401(k) did not have a 12/31/2024 balance because all of it was rolled to the IRA during 2024!

We have a terminated plan that had a rollover go from the 401(k) to a traditional IRA. Some of this money was pretax, some was Roth. The FA (who did this incorrectly) was told she had to roll the entire balance back to the plan, open a Roth IRA and try again. The brokerage firm is stating that now that the participant is age 73, she must take her RMD first. One issue is that they are using all $$ to determine even though some is Roth because frankly, to them it is. My question is does the participant need to take an RMD from the 401(k) as well before it's rolled back out to the correct IRA(s)? The original occurred in 2024 so both accounts have 12/31/2024 balances. Thanks!

Hi, I am working on a profit sharing projection for a safe harbor match plan with prevailing wage (ugh). The eligibility for sources other than PW is 21/1 YOS/semi-annual. There are 4 employees receiving PW - one is HCE (another ugh) and one never met YOS. I was able to disaggregate those not meeting the YOS so the OEE that has PW doesn't need to receive the gateway. The employer gave specific $ amount for several participants and I backed into the HCE $$ by giving them 3x so it passes gateway. Not all NHCEs (6 don't) receive a PS - it's SH Match and this passes. My question is related to the those in the main test - if the document states that PW offset PS, SHM and Match - I am struggling to get ASC to run how I think it should be run. If I click on PW to include in gateway, then it uses PW eligibility and includes ALL employees and is saying it fails gateway because those 6 participants are not receiving a PS. My understanding (and I could very well be wrong), I thought PW would offset PS and would be counted in ABPT but NOT in ABT. The lowest NHCE was 2.65%, so I gave HCES 7.95%. However, the HCE that has PW only shows .21% on the gateway test because most of his ER is coming from PW - the rest is PW. I messaged ASC to see if there is a work around but figured I'd check with you gurus as well.

Hi, Our client contacted us to let us know that a participant completed a deferral election form November 2023 and they've been making deposits into her brokerage account. However, the deductions were never set up with payroll. She just noticed a year later. The client spoke with their payroll company and their labor lawyer and both said as long as they don't tell her it's required, she can sign something and can have deductions for the next 3 payrolls to make up for it. The payroll person even mentioned her writing the company a check (I explained that the money shouldn't be from her, if would need to come from her SDBA if she were to pay it back). I explained to her they have two issues going on: 1. failure to implement and because of that 2. excess deposits. I calculated a QNEC, g/l and the full safe harbor match and then figured out the difference between that and what was deposited. I guess I'm just looking for guidance because even with the deposits being made erroneously, I feel like this is still a MDO that needs to be corrected.

Hi Paul, Question- we have an EZ filer that came to us for assistance - their prior TPA did not let them know about the IRS program, so they just filed their form late. Then received the CP283. Based on the instructions, once you receive that, there's no hope. What do you think the chances are of them filing anyway and paying the $500 fee?