rocknrolls2
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rocknrolls2 last won the day on August 28 2023
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when I started work in this area, the rule was that if no contribution was made by the due date of the corporate tax return plus extensions, there was no valid trust and therefore no plan byoperation of law. The IRS approved of that position. In spite of all the legislative and regulatory changes made since then, I am not aware of anything that would have changed this principle. Since there is no plan ortrust in existence, there is nothing to correct. That employer should simply adopt the 401(k) plan of one of its affiliates.
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I am reviewing a health plan SPD. Has there been any official model NSA/TiC summary published by the Departments of Health and Human Services, Labor and Treasury of an approved summary notice that is suggested for this purpose? Alternatively, is there any summary language that anyone would be willing to share?
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Is Failure to Deposit into a VEBA a Reversion? Any correction?
rocknrolls2 replied to KEC79's topic in VEBAs
I share Gina's concern on this situation for the same reasons. You can correct the situation for the amounts that were not contributed in the past by filing under the Voluntary Fiduciary Correction Program and contributing the amount owed plus interest using the DOL's calculator. As far as the IRS is concerned, I am not aware that they have any program in place to address voluntary correction of tax exemption issues. Because of this, you should retain highly competent ERISA counsel to assist you in rectifying this problem. The DOL program would likely resolve any prohibited transactions and other fiduciary issues. The danger is, that you do not want the IRS to know about this and hit your client with a 100% excise tax on a reversion. Perhaps there is a closing agreement you could pursue to address any IRS issues. Regarding the overfunded status of the VEBA, you could, prospectively, collect lower premium amounts from employees or amend the VEBA going forward to add additional benefits to help soak up some of that excess amount. I hope these suggestions prove helpful to you. -
RMD Final and Proposed Regs
rocknrolls2 replied to Paul I's topic in Distributions and Loans, Other than QDROs
If you want to save some trees, wait until tomorrow to print them out. At that time, they will be published in the Feferal Register in three-cplumn format. -
Excess deferral across two plans--too late now?
rocknrolls2 replied to BG5150's topic in 401(k) Plans
Code section 402(g( prohibits an individual participant from making elective deferrals exceeding the annual dollar limit, except to the extent that the participant is eligible to make catch-up contributions. 402(g) applies determines compliance with the annual limit across all plans to which elective deferrals are made, regardless of whether the employers are related. 401(a)(30) is a qualification requirement prohibiting a plan from accepting elective deferrals in excess of the annual dollar limit except to the extent that the participant is eligible to make catch-up contributions and the total of such contributions do not exceed the sum of the regular limit on elective deferrals plus the annual limit on catch-up contributions. Reg. Section 1.402(g)-1(e)(8)(iii) provides: "If excess deferrals (and income) for aw taxable year are not distributes [by April 15th of the taxable year following the taxable year in which the excess deferrals were made] they may only be distributed when permitted under section 401(k)(2)(B)[except to the extent distributed in accordance with correction under EPCRS]." -
Nothing specific. I agree that it would be not only fairer but consistent with the principal that you should not be taxed on amounts you contributed with after-tax dollars. Since the restored amount is an employer contribution that was previously distributied to the participant, then it might be argued that it should be treated and taxed as an employer contribution upon ultimate distribution.
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CuseFan, I agree with your answer to (1). If we are dealing with a plain vanilla profit sharing plan with no deferrals or after-tax contributions, I believe that the amount is treated as if it were an employer contribution and subject to tax at distribution. Unfair? Definitely, but I believe it is one area where the recovery of tax basis rule falls apart. By contrast with qualified disaster distributions and qualified birth and adoption distributions, timely repayments effective wipe out the earlier taxation of the initial distribution. Not that restoration repayments may be made up to five years from the date that the employee is rehired. This might be one area for correction via a SECURE 3.0 or SECURE 2.5.
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Participant X is a participant in A's profit-sharing plan. After completing a few years of service, X quits when he is 40% vested and takes a distribution of his vested account balance. For simplicity's sake, let's say that the X's account balance is $10,000 and that his vested portion is $4,000. A's profit-sharing plan provides for the immediate forfeiture of the non-vested account balance upon distribution of the vested portion, subject to a repayment provision. Two years later, A rehires X. Let's say that X repays his $4,000 distribution and has the previously forfeited $6,000 portion restored. A few years later, X terminates his employment with A and receives a distribution of his fully vested account balance, which was then $20,000. A couple of questions: (1) in the year when X repaid the $4,000 to A's profit sharing plan, was the repayment made with after-tax money or was it made with pre-tax money? Was the repayment amount treated as a rollover? (2) when X took a distribution of his then fully vested account balance, was the taxable portion limited to $16,000 or was it the full $20,000?
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Employer stock in 401(k) Plan
rocknrolls2 replied to Tegernsee's topic in Investment Issues (Including Self-Directed)
jRegarding Paul I's pint on NUA, I recall seeing IRS Revenue Rulings from the 1970s in which te IRS concluded that an in-kind distribution of the former employer's stock allowed rthe participant to be taxed on thd NUA. However, I am not sure whether that remains the current state of the law. You should consult IRS Pub 590-B to find out if thst remains true today. -
Death in the middle of a 401k rollover distributions
rocknrolls2 replied to chris-c-thomas's topic in 401(k) Plans
Were the checks made pYable to Mom or were they made payable to the Mom IRA? -
Bringing this back to the present reality, LTPTEs are not the best example because they were enacted as part of SECURE 1.0. SECURE 2.0 merely reduced the number of consecutive years needed to become LTPTEs from 3 to 2 and extended their application to 403(b) plans. Better examples would be PLESAs or the mandatory auto enrollment rule.
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Independent contractor or not
rocknrolls2 replied to Jakyasar's topic in Retirement Plans in General
If I may chime in: for the sales associates, there is a statutory contractor provision in the Internal Revenue Code that treats them as independent contractors. In all likelihood, Jane and Mary are common law employees of Joe's business and would have to participate in any qualified plans the business establishes. -
Building on Paul I's comment, even if the owner is not self-employed, please note that there is one other limit your example seems to disregard: this is the limit on the employer's tax deduction for its contribution to the plan. For a defined contribution plan, the limit is 25% of the compensation of the participants, disregarding elective deferrals. The deduction limit is also subject to the 415 limit. While you could allocate an employer contribition of 33% to the non-owner, the total contribution as a percentage of the participants' compensation would be limited to 25%. Perhaps the allocation to the owner would lower the overall percentage of compensation closer to the 25% limit -- otherwise, a lower percentagevwould need to be allocatee to the owner so as to not exceed the tax deduction limit.