Bird

The topic title says SEP and the text says SIMPLE. What do you have? As far as how the IRS recognizes this, if you file on a Schedule C, then they know you are an unincorporated business. You take the deduction on...I think there is a new Schedule 1 for 2018.

In my world, if we're the TPA for this plan, we're taking them by the hand and walking them through all of this. We'd be the ones who would know how to make the submissions, most likely. If we didn't, and I'm wracking my brain to think how that would be possible, we'd figure it out.

I've sometimes taken the position that such trailing dividends as well as the resulting payouts were "pending" - I guess you could call them accrued. I'm not saying it's right and ya takes yer chances I guess but...how is it going to come up in the first place, and in the second place, I think I could talk my way through it if necessary. Sux that this would happen after the plan was term'd in September...

I'm not so sure the burden of proof is on the plan, in fact I'll say I disagree. As noted, the SSA is just saying that someone might have a benefit. If it can't be "proven" with 100% certainty that the participant did not get paid, then...let's start with how much you are going to pay him/her? Maybe it's just semantics but "no proof" does not equate to "payment of benefits." I agree that the best case scenario is to have all records, forever, and that's what I tell my clients when asked. Frankly I don't know if this kind of thing would get litigated (I don't know how else it would be resolved) but I don't think that bringing a notice into court from the SSA saying "you might have benefits" is going to get someone very far. Does anyone have experience of someone getting benefits (to which they probably were not entitled) solely based on the SSA letter?

I'll say I'm not sure but it's got to be a difficult fix. It's not like the firm has the money; they already sent it to the IRS. And they reconciled their withholding on Form 945. And they issued a 1099-R telling the IRS that it's your money. And it's now March of the next year. It's not like they can get the money back from the IRS, at least not easily...I think it's going to be easier/faster to take other money and deposit it, and call it a rollover, and deal with the inevitable IRS inquiry later explaining the circumstances for the late rollover. I assume you have a copy of the form or other documentation saying you didn't want withholding? "On the other hand"...it doesn't seem right that they can screw up and then just shrug their shoulders and make it your problem. It's not much of an answer but I figured I'd try to continue the conversation.

What does that mean exactly?

As long as the termination of that employee was not related to the plan termination (which doesn't necessarily have to be 5/2018 BTW) I don't think you have to vest him.

Isn't the qualification status equally at risk if the PA forces an RMD if it is not actually required? I think the argument should be about the actual status of the employee, and given what has been presented, I don't see a case for calling him "retired." ("Semi-retired" for sure but so what? It sounds like there is clearly an ongoing employment relationship.) This reminds me of some recordkeepers who ask for spousal consent to loans and/or distributions when it is not required, "to be on the safe side." The fact is that they are adding requirements that are not there and potentially disowning participants from benefits to which they are entitled. (They will generally back down when confronted but it's still impeding access.)

I don't see a basis for a forceout under these facts. You could amend the plan to raise the cashout limit to $5000 and then force her to an IRA. Or do nothing and live with it.

Based on the latest facts, I pretty much agree with Austin. The good news is that the document covers the entity on an ongoing basis. The bad news is the rest of the facts are ugly. As far as the accountant doing whatever he's doing to create 2018 income for the sole proprietor, I guess that's his call and his problem. But then you still have the issue of the sole prop not adopting the plan. There's a (flimsy?) argument that it could be done by 3/15 retro to the prior year, as an amendment that increases benefits. But it's 3/19... Might be a case where it's best not to make the client's problem your problem. (Of course it will probably get twisted around and blamed on you somehow.)

Actually I think the new question is - did the corporation adopt the plan? I'd bet, based on the general tenor of this case, that it's still the sole proprietor's plan. Which really flips the script.

Definitely not fair but that's not a criterion for correction. Adviser error isn't either. I'm not saying I wouldn't let him pull it out but it calls for a heart to heart talk about who is liable in the event it blows up. To flesh it out more, if the money came from his own pocket or the old sole prop, then that's a better scenario; those contributions probably aren't allowable under any circumstances. If it came from the corp, that would make a clear case for an employer contribution. FWIW.

I think a question that needs to be asked is if there are any employees. And another is, where did the money come from? I'd look at it like this - he absolutely positively did not defer anything. There were no wages from which to make a deferral. So you have a "deposit" (from his personal bank account? from his corporation?) that looks like an employer contribution. If he has no employees then there is definitely no issue with returning it. Probably as a mistake of fact (bad estimate of wages to support such an employer contribution). If he has employees...there's a case to be made that it was an employer contribution that should be allocated. A pretty strong case.

I say "yes." We move money from source to source without much thought. Sometimes won't even bother to move it, if it doesn't really matter at the end of the day and there is a trail.

Well, it's a little hard to follow but I don't think the IRA custodian has a choice here. They can't just change their reporting to act as if they were the 401(k) plan. What happened is that you rolled over your full account in 2017, and later it was determined that some of that was not eligible for rollover, so the IRA disgorged it in 2018, but doing so treats it as an "excess contribution" for 2017. (Essentially the same as if you contributed more than the $5000 limit as a regular IRA contribution...you don't get a deduction for the excess and they return it as a non-taxable distribution, except for earnings.) I think their reporting is accurate. But, in this case, your 401(k) plan should have issued two 1099-Rs (for 2017), one showing a rollover for the total minus the test failure, and another showing the test failure amount as taxable since it can't be rolled over. So processing the distribution in 2017 instead of 2018 (should have) unwittingly and inadvertently caused the failure amount to be taxed in 2017 instead of 2018. Somehow I get the feeling the 401(k) just gave you one 1099-R, for the full amount rolled over? I think that is the crux of the issue here. I'm not saying it's right but I think if you just file based on the 1099s you got you won't get any static. If you do the right thing and claim the income in 2017 (yes I meant 2017), you'll probably get an inquiry of some sort because while you can get away with a lot concerning things they don't know about, if there is a mismatch on forms they receive (e.g. 1099s) vs. what you report on your 1040, they will look into it (even to say you paid too much). I haven't seen this so I'm just throwing stuff out there for conversation...maybe someone else has direct experience and can share.

I think your form is fine and can be considered a substitute W-4P.

That's the only correct method that I know of. Just be sure that the participant knows enough to withdraw it as an excess contribution, not a regular distribution, otherwise he gets 2 1099-Rs showing a taxable distribution. The incorrect alternative is to code the full distribution as a rollover, and tell the participant to take the RMD from the IRA as a regular distribution. I'm not advocating it but it's probably less likely to get screwed up. We had to go this route last year, through a combination of someone knowing enough to be dangerous, not paying attention, and idiocy.

The thing about individual variable annuities is that you have a choice of either surrendering them, and paying a steep surrender charge, or keeping them until the surrender charge burns off...but probably paying an equivalent amount (or more) in higher annual fees over the remaining time. It's a really tough call to advise on paying the surrender charge, but probably "prudent." I'm surprised anyone got away with selling these recently in light of the hoo-hah with the fiduciary rule. I'm not sure I understand that.

It can be done. Whether it is advisable or not is another Q. Does the new employer want a plan? By the time you get done changing the sponsor and everything that goes with it, it's probably just as easy (or easier) to write a new plan and have the guy with the plan now terminate and roll the money in. There is potential liability for the new employer to take on an existing plan and little or no reason to take that on.

Who got the money?

Just throwing this out there, but it might be a case where someone saw the words "change" and "advisor" in the same neighborhood and knee-jerked to complete a checklist with "blackout" on it.

Lol That tells us all we need to know. I'll bet it's the tip of an iceberg.

I think, and it is indeed unfortunately phrased, that the simple answer here is that the word "and" which I bolded above really means "and to the extent they are made" (i.e. if matching contributions are made they must satisfy the ACP safe harbor). ASPA ASAP 04-06 (written by Larry Starr, so it must be true, just ask him...and yes they were "ASPA" asaps back then) makes this clear. Of course that's not proof but RR 2004-13 says that, albeit not so clearly; unfortunately they used an example with a SH match but the point of the example was not the type of SH used but the fact that the plan allowed for nonelective contributions but didn't make any that year.

Is the participant intending to amend his return (presumably for 2015)? I'd want to know that before banging my head against a wall. Obviously he's entitled to get that done right but if he's not going to do anything about it...I don't know that I'd bother. It also sounds like there should be basis from payments made after the default. I'd want to know more about exactly what happened and why before taking any action.

They "think" that only $18,500 was deferred or they "thought" that only $18,500 was deferred and prepared the W-2 that way, and now realize the error? Assuming the latter, my position would be that the W-2 should be amended to reflect reality. I suppose you could make a case that it's not what the participant wanted and look into appropriate corrections but I think you'd have to start by proving that it was indeed an error but I sure wouldn't want to go there.