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FGC cited this case earlier in the thread, and there has been a further decision by the District Court (linked below). Here too DROs attempted to retroactively treat the ex-spouse as Tatupu's surviving spouse on his date of death for purposes of survivor benefits. After examining the language of the marital separation agreement (which discussed the pension plan, and provided for "shared payments" but no survivor rights) and performing a fairly extensive survey of the law, the Court ultimately concluded: "By subsequently purporting to give Ms. Garcia-Tatupu survivorship rights, thus allowing her to assert a separate interest in the Plan, the state post mortem and nunc pro tunc domestic relations orders have the effect of altering rights under the Marital Separation Agreement and providing benefits that were not otherwise payable upon Mosiula Tatupu’s death.This is an increased benefit under 29 U.S.C.§ 1056(d)(3)(D); therefore, the post mortem state domestic relations orders do not provide an enforceable Qualified Domestic Relations Order beyond the terms of the Marital Separation Agreement." Interesting subject. Tatupu v NFL

I'm surprised there's nothing explicit from the Service on this--I thought there was. But then again, I'm constantly surprised... Your summary seems logical as this would generally be the tax result if the participant had rolled the funds over from the Roth 401(k) to a Roth IRA (except of course for the penalty exception, and the ability to use an older Roth IRA to calculate the holding period). Your observation in paragraph 4 that the beneficiary is screwed if the 5-year RMD rule applies unfortunately seems correct...

The next three FAQs after the one cited above seem to suggest that for this purpose, the IRS is treating the participant as the "account owner:" Can an account owner withdraw more than the RMD? Yes. What happens if a person does not take a RMD by the required deadline? If an account owner fails to withdraw a RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%. The account owner should file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with his or her federal tax return for the year in which the full amount of the RMD was not taken. Can the penalty for not taking the full RMD be waived? Yes, the penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall. In order to qualify for this relief, you must file Form 5329 and attach a letter of explanation. See the instructions to Form 5329.

If it is a promise to establish a plan in the future, I don't see a qualification issue. Once they establish the plan, they will have to meet all the tests/requirements. My initial concern was if the profit-sharing plan is established with the intent of only ever having a single contribution (not clear from OP's post), is that plan qualified? And if there is no other contribution, is there a discontinuance (which may be moot since the employees would likely be vested long before the issue arose)? Also, on re-reading Luke's post, I realized he (and perhaps the OP?) was talking about a 5 year cliff vesting schedule once the plan is adopted, and obviously that's not possible.

If Luke's summary is correct, is there a potential qualification issue, or at least a vesting issue, because of the substantial and recurring contributions requirement?

I took a quick look at the case. It didn't turn on the plan being an owner only plan. Apparently the plan in question didn't have a favorable determination letter as of the date the owner filed for bankruptcy. So the owner didn't get the presumption that the funds were exempt from the bankruptcy estate. This allowed the court to go further into the statutory requirements and examine the plan's "substantial compliance" with the qualification rules... Case is here

Assets in the plan continue to receive unlimited protection from creditors in bankruptcy. But if it's not an ERISA plan, they receive no protection outside of bankruptcy--state law applies. So in both cases there would be unlimited bankruptcy protection. Whether the owner is "better off" rolling over to an IRA would depend on what protection the state provides outside bankruptcy to IRAs v employer plans. *I deleted my original post and re-posted, but in the meantime LDR responded to my initial post. That's the reason for the funky sequencing...

Assets in qualified plans covered by ERISA are generally fully protected from creditors both inside and outside bankruptcy. However, plans covering only the owner, or the owner and his/her spouse, are generally NOT covered by ERISA, so they receive no federal protection from creditors outside of bankruptcy--state law applies. They do receive full protection from creditors in bankruptcy. Similarly, IRAs are not ERISA plans, so they also don't receive any federal protection from creditors outside bankruptcy--state law applies. And as mentioned earlier, federal law currently limits IRA protection in bankruptcy to $1,283,025 (aggregate of all traditional and Roth IRAs owned). However, that cap doesn't apply to amounts rolled over from employer qualified plans or 403(b)s. Those rollovers, and any applicable earnings, retain unlimited federal bankruptcy protection. (The cap also doesn't apply to SEP or SIMPLE IRAs.

oops. sorry, yes, jim and tom are obviously correct.

The 2018 Bipartisan Budget Act eliminated the need to take a loan before a hardship withdrawal (you were responding to a 5+ year old thread).

"My plan is to move everything from Vanguard at the right time and put the funds into an IRA." Keep in mind that as a spousal beneficiary you have the option of transferring the money either into an inherited IRA or into your own IRA. In most cases the latter is most appropriate but in some cases, depending on your age and whether you'll need to use the money (for example, before age 59 1/2 when the 10% early distribution penalty might apply) it makes sense to roll it over into an inherited IRA. So be sure to evaluate all your options. Best of luck.

"There was nothing in the original or any other post to indicate this was the case. If you were just commenting about other plans then fine." For the second time, I specifically asked the OP what he meant by "deposited."

One plan I've seen showed, for a fully vested employee, the contribution as a "conditional match," but also showed the entire account balance (including the conditional match and earnings) as the "Vested Balance." Then after termination prior to the end of the year, the account balance was reduced ("Forefeitures Applied") and the new reduced balance was shown as the Vested Balance. *shaking head*

"If money is incorrectly deposited it is definitely ok to "take" it out of an account." The money was not incorrectly deposited if the plan says that the contribution is made and allocated each payroll period. That is a plan design choice. And if a plan makes that plan design choice, they have to understand that it is inconsistent with the concept of full vesting. That's why I asked the OP what the plan document says. To make it simpler, I have seen plans that have a last day requirement, but the match is contributed and allocated to employee accounts each payroll period (they accrue investment gains and losses, are reflected in account statements, etc). Then, if the employee terminates before the end of the year, this "conditional match" is removed from the employee's account. Under the Section 411 regs a contribution that is conditioned on performing future services is a forfeitable contribution. An employee who is 100% vested has a right to 100% of his/her entire accrued benefit. The accrued benefit of an employee in a DC plan is the account balance at any point in time. You can't make a forfeitable contribution to the account of a fully vested participant. You can have a last day requirement, and in some cases you may be able to remove the funds if the employee terminated before the end of the year, but not if the employee is fully vested. 1.411: For purposes of section 411 and the regulations thereunder, a right to an accrued benefit is considered to be nonforfeitable at a particular time if, at that time and thereafter, it is an unconditional right. Except as provided by paragraph (b) of this section, a right which, at a particular time, is conditioned under the plan upon a subsequent event, subsequent performance, or subsequent forbearance which will cause the loss of such right is a forfeitable right at that time. This is a tax and ERISA issue.

"The match is calculated and deposited each pay period, I'm thinking we should eliminate the allocation conditions altogether." Deposited where? What does the plan doc say? Is the contribution allocated to each participant's account each pay period (ie, reflected in their current balance, subject to forfeiture if they don't meet the allocation conditions)? If so, I agree with JamesK that this "should probably be revisited to see if there is a better way of handling matching contributions." In my opinion it's extremely questionable whether a plan can "forfeit" these "conditional allocations" once they're in an employee's account if the participant is otherwise fully vested. I think such an employee could have a very good argument that he/she owns the contribution once it's deposited in their account.

DOL addresses this in FAQs discussing the regs (but doesn't go much beyond what you originally cited): C-19: Does the regulation limit a plan's ability to establish a maximum period for the filing of initial claims for benefits? No. The regulation does not contain any specific rules governing the period of time that must be given to claimants to file their claims. However, a plan's claim procedure nonetheless must be reasonable and not contain any provision, or be administered in any way, that unduly inhibits or hampers the initiation or processing of claims for benefits. Adoption of a period of time for filing claims that serves to unduly limit claimants' reasonable, good faith efforts to make claims for and obtain benefits under the plan would violate this requirement. See 29 CFR § 2560.503-1(b)(3). https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/benefit-claims-procedure-regulation

"I am thinking maybe we could argue after 59 1/2, but I don't like that argument. Under the plan, a distribution made after 59 1/2 is really described as an in-service distribution, and the participant here was not in-service at the time." I don't believe the 59 1/2 rule is at all related to whether or not the participant has separated from service, and I don't think the plan language is relevant. Just like the 10% early distribution penalty. The distribution just has to be after reaching age 59 1/2. (And the distribution may also be "on account of separation from service." See, for example, the PLR linked below.) Nat Choate's book has a good discussion of this issue (source of the PLR cite). https://www.irs.gov/pub/irs-wd/0302048.pdf

"Would that first RMD be based on Single Life table?" There is no RMD in this situation. Since husband died before his RMD, there's no lifetime RMD required. Since spouse is rolling the funds over to her own 401(k) there's no RMD required to spouse as beneficiary (assuming she makes the rollover within 5 years after the participant's death). She won't need to take RMDs from her 401(k) plan until she retires (unless she's a 5% owner).

Just for completeness, the 5 year rule is only required if the participant died before his or her required beginning date. That can't be determined by the original fact pattern. (Of course, the terms of the plan document control.)

Since he failed to take the 2017 RMD by April 1, he's also subject to the 50% penalty. Is there a fiduciary issue for the plan not distributing the 2017 RMD?

Maybe not enough coffee yet today, but I'm confused by this: "If the plan also has Roth elective deferrals and an in-plan Roth rollover feature, an employee's accounts for elective deferrals, nonelective, matching, and rollover may all contain both Roth and non-Roth accumulations." Designated Roth accounts are by definition separate accounts under the plan. So I agree with you and Kevin C that the plan can specify the order in which the accounts are reached, or can allow the participant to choose. For example, the IRS has specifically stated that where hardship distributions are allowed, a participant can elect to receive a hardship distribution from his/her designated Roth account (presumably, unless the plan provides otherwise)" "Since I make designated Roth contributions from after-tax income, can I make tax-free withdrawals from my designated Roth account at any time? No, the same restrictions on withdrawals that apply to pre-tax elective contributions also apply to designated Roth contributions. If your plan permits distributions from accounts because of hardship, you may choose to receive a hardship distribution from your designated Roth account. The hardship distribution will consist of a pro-rata share of earnings and basis and the earnings portion will be included in gross income unless you have had the designated Roth account for 5 years and are either disabled or over age 59 ½." https://www.irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts

If you want an IRS discussion (confirming Kevin C's comment), see link below. https://www.irs.gov/irm/part4/irm_04-072-005#idm139991955091104

I would also request a copy of the ERISA plan document, as SPD's often aren't accurate or complete. Plans are required to provide the requested documents within 30 days, or could face penalties of up to $100 per day. If you have trouble getting the documents the DOL may be able to help. See link below. https://www.askebsa.dol.gov/WebIntake/Home.aspx

The rolled over assets, and any earnings attributable to them, do continue to receive unlimited protection in bankruptcy. Protection for other IRA assets is currently limited to $1.28 million. If possible bankruptcy is a concern, it's usually a good idea to use a separate IRA to track these dollars and their earnings.

"edit: noticed some earlier threads where they quote the IRS manual saying other than vesting there is no practical consequence though that section seems to have disappeared from the manual." You may be referring to the information on "Complete Discontinuance" on pages 27 and 28 in the link below: "Facts and circumstances are used to determine if complete discontinuance has happened. If plan participants are fully vested at all times, then complete discontinuance is not an issue." And with respect to EsopGuy's point: "In the case of a single employer plan, the discontinuance becomes effective not later than the last day of the employer’s taxable year following the taxable year in which the last substantial contribution was made." https://www.irs.gov/pub/irs-tege/epchd604.pdf