David D

The difference is for business tax returns, the deferrals are withheld from their employee paychecks. So the employee is making the contribution timely as it is withheld from their pay. It's the employer that pays the penalty for sending in that money late. For the Sole Prop, if the money was not deposited by the extended due date of the tax return, no employer or employee contribution deduction is available for that year. Any deferrals contributed now will count towards the current 402g limit, so there is no benefit in trying to say they are late deferrals as they cannot be deducted for the year they were intended to be made.

Yes, they are included in box 1 of the W-2.

You need to find out whether it's an S Corp that contributions are based on w-2 wages, or a partnership that bases contributions on line 14a of each K-1.

Because the participant is still working, there is a Treasury Reg that permits RMD payments to be made while working and then payout under any available option upon actual retirement. This is different from a participant who has terminated service as they are then electing their benefit option at the time they elect their RMD payment.

Amending is fine. Assuming it's a non PBGC plan, just be careful of the 6% of comp limit in the DC plan as you may have to give more in the DC plan to one or two to pass testing.

I did see some accountants take this approach in 2025 to keep the comp below the limit to avoid the ROTH in 2026. For an owner only plan it has no effect on the amount the owner can get in the plan. If there are employees, and cross tested, then there may be higher contributions required for the NHCE's.

Sounds to me like the record keeper was either instructed to allocate money to the participant in error, or they allocated monies that should have gone to another participant in error. The record keeper then made the plan whole by funding the amount of the over payment into the plan. The plan sponsor can either take it as a win, or they can instruct the record keeper to remove the funds they credited and the plan sponsor can deposit the needed funds to make the plan whole. The plan sponsor can then pursue through the court system to see if the courts will agree that monies allocated in a record kept account were incorrect and should be repaid by the participant. If they recoup the legal fees as well as the money, they would be in the same position they are now.

For tax deduction purposes, contributions to the Sole Proprietor account must be made by 10-15 assuming an extension was filed for the personal taxes. That goes for both employee and employer contributions. He cannot deduct anything for 2024 unless other money was timely deposited.

The employee can still contribute to the 403(b) plan, they just don't get the immediate tax benefit. For those of us in the business a long time, there was a time when 401(k) pre tax deferrals were not recognized for state tax purposes. I live in CA and they still don't recognize HSA contributions for income tax purposes.

You would also want to review the plan loan policy in place. Most loan policies that i see say that if a participant defaults on a loan, that participant cannot take another loan.

In that case it does not, but unfortunately many accountants are against paying Self Employment Tax or payroll taxes on wages, so we often see a client incorporate as an S Corp and pay little to no wages and seriously reduce or eliminate their ability to make pension contributions.

RMD's are on the total account balance of the pre-tax assets, so $620,000

I would test the plans together again, but now rather than using the credits in your val you use the credits plus the excess you are allocating to see that it passes. It seems to me that you would need to give something to the other in the CB plan as you will be amending after the plan term date and the amended credit would not pass on it's own as only the owner would get anything.

I have only set up a QRP when the owner is limited by 415 on plan termination and cannot be allocated the excess. Most plan documents allow for the allocation of assets in a non discriminatory manner on plan termination. Whether you need an amendment to allow for the maximum deductible contribution made prior to December 31, 2025 depends on whether the amount contributed during the year is less than the allowable maximum or not.

Are you actually trying to exclude existing participants from participating in the plan, or just excluding them from being eligible for a Safe Harbor Contribution?

Yes,. if you have determined they are still a controlled group after the Family Attribution Rule changes of SECURE 2.0 they can have one plan. If not, as CUSEFAN suggested, they could have a MEP.

One additional step the client may want to do is immediately on making the After Tax Contribution, convert it to Roth so that there is no tax on the earnings. It also might be good reinforcement to tell the client although you contributed $180,000 in this example, only report and deduct $100,000 on the 1040.

One issue might be passing 410b coverage on it's own. Often an advantage when adding a second plan of an employer is to have different testing methods or allocations, which you most likely would not be able to do with this plan. They would simply be paying for administration of two plans rather than one.

What you stated in your original question is why typically when you have a 401k plan with a cash balance not subject to PBGC, it is better to have a Safe Harbor Non Elective plan than a Safe Harbor Match plan in regards to staying within the deduction limits when trying to pass 401a4 testing.

I think clarification is needed on this. If the owners of the company are sponsoring a 401k plan, it's either an incorporated business for which they are not being paid wages, therefore cannot defer, or it's unincorporated in which their income should pass through to their Schedule C or K-1 as self employment income. Typically the business would pay independent contractors via 1099, but it doesn't seem right that the owners of the business would qualify as independent contractors. It seems to me they are already eligible for the plan they sponsor unless specifically excluded. The only potential qualification issue is if they sponsor a Safe Harbor Non Elective 401k plan and were entitled to Safe Harbor Contributions based on their SE income and did not make that contribution.

You need to check the document. The old Keogh Plans did not offer Salary Deferrals, only ER Money, so it may be a solo K plan that is being called a Keogh because the owner is Self Employed.

5500 EZ's must always be filed in the year the plan is terminated and distributed, so you would be filing both a first return and a final return in one filing

I believe the issue here is the limitation year. You cannot have a limitation year that precedes the date of incorporation, so that first year would be pro rated.

Absolutely. My guess is that somewhere in the doc it would address self employed individuals, but not certain

You also need to check how the plan document defines After Tax Contributions. Many I have seen say that After Tax Contributions are made from Gross Wages paid to the employee during that tax year and withheld from pay, not submitted from other funds the participant may have access to.