Bird

I'm not sure I would be willing to prepare a 1099-R when I didn't know what to put on it. I think that devolves to either not doing it at all, or going back and figuring it out.

This is something that came up in the proposal process and probably would never be designed this way, but it's become a curiosity. Let's say you have a SH match plan, and HCEs are excluded from the SHM. But the plan is TH, and Keys (small company so Keys and HCEs are the same) are not excluded from TH. Every NHCE contributes and gets the max SH match. Keys are getting TH (at least in the proposal system) so it winds up that HCEs are getting 3% nonelective and NHCEs get nothing, but the system is showing keys getting 0% nonelective for testing purposes (I guess because it isn't specifically elected as a PS contribution) so it is passing nondiscrimination testing. My take on this is that SH match is deemed to satisfy TH, so the keys should not get a TH contribution. That is, I don't think it is an optional position to say that SH match is deemed to satisfy TH; it does, period. That puts the kibosh on the whole thing, but I still think the TH contributions, if made, should be tested for nondiscrimination (and would fail). Any disagreement on that?

Without looking anything and without cites, I'd think that the taxation of Roth (gains only of course) would depend on his age and the holding period. I don't recall an exception for a QDRO. Assuming he is under 59 1/2, then the gains would be taxable (and subject to 20% WH) but not subject to the 10% penalty.

Actually I was trying to say what you said. You have a conversation; you explain the possible problem and work with it. You don't just say "directors' fees - boom; not eligible/end of discussion." It's obvious, or at least it appears, that this is an unsophisticated client and needs to understand the implications of how that comp is paid. This is indeed the source of whatever disagreement we are expressing. I don't always express myself well but felt like there was not enough information to be drawing conclusions.

I think you (last three posts) are overreacting. This is apparently a small company, not IBM. As I noted earlier "director's fees" might be a shorthand way of saying "they don't do a whole lot but we want to pay them something." Well, not doing a whole lot isn't necessarily "doing nothing." I don't think it is our job to say "tsk tsk, director's fees are not eligible comp and therefore WE are dictating that it is reported improperly and won't count it, etc. etc." I mean, we don't even know at this point if these folks want or expect a contribution. Let's get the facts nailed down before saying what must be done. My point is that there needs to be some (more) dialogue before jumping to conclusions and decisions. I'd start by saying "Well, directors' fees are [edit AREN'T (!)] eligible compensation. If these folks aren't expecting a plan contribution(s), then we're good, because they don't work enough hours, so frankly we don't care what you call their comp. If they're expecting a contribution(s), then we have two problems - 1) they don't work enough hours, the way the plan is written right now, and 2) directors' fees aren't really employee compensation." If they come back and say "yeah we really want them to get contributions" then you talk about amending the plan and have them tell you that they misspoke when they said they were directors' fees. I know that this was supposedly clarified but I don't trust it. Just a sixth sense about such things and I might be wrong. But the thought that maybe this is done to provide health insurance is important - are we (you) going to blow up their health insurance coverage too because you're dictating to them what is or isn't employee compensation? (edited to add last two paragraphs)

...or just give up and have him explain it to the IRS if they ever ask. I'm not sure it can be corrected without making it worse.

I might be in the minority but it doesn't bother me that they are paid on a W-2. The IRS is collecting payroll and income taxes and I doubt they would quibble. In a tiny company like this, I don't know that "directors' fees" is a significant definition. I know that I wouldn't mess with trying to exclude comp for directors' fees and would control the allocations either through an hours requirement or by using groups. It really requires a talk where everything is out in the open, so you're not being asked later why you are effectively passing judgment on whether these two are, or are not, getting allocations.

I'm pretty sure it is simply the 10 year rule with no consideration to the participant's theoretical RBD. I know I got quite a headache recently trying to sort our the old, new and newest rules.

I agree with Paul I. And would add that you can monkey-do this, i.e. just follow the document and not question it, or you can ask what they would like and either find out that the allocations conditions should be changed (e.g. to 0 hours), or not, or that they are thinking about work and actually do work 1000 hours or could reasonably thought to work 1000 hours. Some of it depends on the size and nature of the workforce. FWIW we almost use "everyone in their own group" and no hours requirement for cross tested plans (more accurately, general-tested plans). That way you can control exactly who gets what, down to 0 if desired.

But the document language that Metsfan026 cited says it happens after a 5 year break (an earlier post by Kac2014 called for immediate deemed cashouts, but it was a different document). I think this is a mechanical exercise - if they had a 5 year break prior to plan termination, then they are 0% vested and forfeit; otherwise they become vested upon termination. Some (many) years ago, when we submitted plans for DLs, the IRS would ask about forfeitures within 5 years of the plan termination. It wasn't ever a problem, but I think the idea was that they were looking for terminations and forfeitures that were somewhat related to the plan termination. I think I even remember them asking for evidence that someone who term'd a couple of years prior was a voluntary term (quit vs. fired). I asked "what's the difference?" I think I got a mumbled answer about it possibly being related to the plan termination, but in any event it wasn't challenged.

thanks!

Jeez. That's surprising...but maybe not. When things are computerized, it's easy to just pile on anything and everything - when in doubt, throw it...in.

Participant (owner) born in 1938 has been taking RMDs for many years. Spouse was born in 1954 🫤 so we have been using the joint table. Participant dies in 2022. Normally calculated 2022 RMD was paid to spouse as beneficiary. Going forward...I think: The 2023 RMD is based on the 2022 joint life expectancy, minus one. The spouse can roll over (after the 2023 RMD is paid) to her own IRA, or her account within the plan. Does that sound right?

Ask him to show you the regs that says it is optional. Anything other than $7000 in your example is a random number chosen by someone; the excess over $7000 is not an RMD and subject to all normal distribution rules (e.g. 20% WH).

I agree with comments above. I doubt there is any kind of deliberate plan to hold retirement assets on the part of custodians. Since Fidelity was mentioned, I will comment that if a scenario fits into their cookie cutter model, it will go quickly and smoothly, otherwise they are as hard or harder to deal with as anyone. No props to them from me. I'll also add that in our little corner of the plan world, our clients' plans often say that participants can't get their money until after the end of the year, AND after all contributions have been deposited. That is often misunderstood as some kind of arbitrary case-by-case decision.

Or it's been allocated as, say, a profit sharing "contribution." But it's not a contribution on the income statement, nor should it be netted with distributions; seeing only two incorrect options is what elicited the "What?" reaction from Lou S. (I guess maybe the OP might think of your example as "netting" $10K - $2K to get $8K. But anyone who is thinking of the distribution as $10,000 and requiring some kind of income to offset it is...uneducated, to be as polite as possible.)

You are correct; it's not cross-referenceable. But, even back when we created our own notices, I did not even think about forceouts having to be in the notice. And if FTW doesn't include them, that's enough cover for me. I always thought of (G) (below) as describing when they could get money from the plan. We all have bright, or fuzzy, lines of ridiculousness and this is on the ridiculous side for me. (Not saying you are ridiculous, but if someone from the government tried to make a case about this...) (G) Withdrawal and vesting provisions applicable to contributions under the plan;

I think a lot depends on how much the owner wants to contribute, and how much control s/he wants to have over the account. A SIMPLE IRA might work (and CuseFan did mention it BTW), but being an IRA, the money is completely out of the sponsor's control once it is deposited. A 401(k) could have vesting on the employer contributions, and generally more restricted access, but at a higher cost.

I think the answer might depend upon how the plan was written, and whether the change is to bring things into line with the way the plan was written, or it is an actual plan document change. Or not...somehow I doubt that on a practical level anyone's ability to get a loan or distribution is really affected. I can say that I have never done a blackout notice when going from pooled (which this effectively is) to self-directed.

A. Does that really have to be in the SH notice? I don't think so...can't say I'm looking at the latest regs, but my recollection is that you can reference the SPD for such stuff, and that's what FTW does in their SH notice. B. If you are including it, I think you have to put blinders on and pretend you don't know about the pending increase. Or, just put it in. Either way, I don't think anyone is going to pore over a SH notice and compare it to...whatever, actual plan operation and/or documents given at the time of distribution.

I think you could do it right away, but I would recommend to the client that they keep it simple and wait until 1/1/24.

So now you're arguing with us? Wow. Just an FYI, "Voluntary after tax contributions" are not exactly common and not listed on the IRS chart.

After tax contributions are not after tax 401(k) contributions. You're the person who said this wasn't too challenging.

Whoever wrote this is talking about, or trying to talk about, 401(k) contributions, not after-tax contributions. It's kind of muddled but none of it is relevant to after-tax contributions.

Thanks for posting the Q, and the answer. I think the problem is here: The reduction to 50K is actually 35000-15000, or 20,000, so the $50k limit, adjusted is 30,000. My spreadsheet missed that adjustment. It came from McKay Hochman in 2010 but I may have mangled it.