rocknrolls2

For the year of the participant's death, you should make the check payable in the name of the participant. The executor/administrator of the estate would then have to endorse the check in his/her representative capacity and deposit it into the Estate of Participant checking account. The reason I am taking this position is that the payment was required to be made to the participant and the after-death RMD rules do not become effective until the calendar year following the calendar year of the participant's death. Also the RMD regs allow the beneficiary to be determined as of the September 30 of the year following the year of the participant's death. In this way, if there was a beneficiary whose life expectancy (or under the 10-year rule) would result in adverse bunching of income taxation in the years the benefit would otherwise be payable to him/her, it would be possible to do some after-death tax planning if such beneficiary timely signed a disclaimer of all interest in the participant's account. As for future years, I agree with the others that you would have to make arrangements with the contingent beneficiaries, if any, or the person or persons entitled to receive the participant's account balance under the terms of the plan document if there is no living named beneficiary at the time of the participant's death.

Since the change in required beginning date is not a mandatory qualification requirement change, I would say that the current preapproved document package does not reflect amendments for the SECURE Act. Even if the preapproved plan sponsor is within the remedial amendment period, it would also be pivotal to see how the employer is operationally applying the required beginning date. To bolster the employer's position that it intends to use age 72 (and not age 70 1/2), it would be quite helpful to know how the employer has communicated the change to plan participants and to see whether the employer has actually implemented the change from an operational standpoint.

While the 402(g) limit is an individual calendar year limit, Code Section 401(a)(30) applies that limit to the qualified 401(k) plan as well, so it is not a complete answer as to whether the limit would be pro-rated by a plan termination or short plan year. I would err on the side of caution and pro rate the limit for purposes of Code Section 401(a)(30).

Now that the basis the numbers for the COLA amounts have been released and we can accurately project them, what is keeping the IRS from making it official?

Alternatively, the HCE could waive participation in the CB plan and continue to elect 0% deferrals in the 401(k).

In my view, the better and safest course is to apply the new eligibility requirements to those employees hired on or after January 1, 2022. Although slightly more aggressive, you might also be able to get away with applying the new eligibility requirements to those hired on or after November 15, 2021. The IRS issued tons of revenue rulings in the 1970s and 1980s and they discussed things like this. If the more aggressive position passes muster after considering the published guidance, then apply it!

I am an attorney but I am not familiar with the Maryland law of trusts. I am admitted to the bar of two states in a part of the country close to Maryland that would like take similar positions in matters of trust law as Maryland. For the most part, trusts were initially created under a state's judge-made law. Over time, state legislatures drafted statutes that directly or indirectly superseded some of this judge-made law. You should hire an attorney who is admitted to the Maryland bar and ask him/her to assist you in this matter. It is possible that Maryland has a statute that provides for the manner in which successor trustees are appointed and who is eligible to be named as a successor trustee if any or all of the trustees named in the trust document die before the trust has fulfilled its purposes. If the statutory provision, if any, is not helpful, it is likely that the probate court or other court in the county where the decedent died will appoint a successor trustee. If faced with this situation, a prospective successor trustee or one of the beneficiaries would apply to the court to have a successor trustee appointed. If there is no other beneficiary but the child who survives the decedent's other children who were designated as trustees, and the surviving child is not incapable of managing his/her own financial affairs, one possibility is to ask the court to declare that the trust has satisfied its intended purposes, terminate the trust and allow the surviving child to receive the remaining corpus and income of the trust outright.

Now that the Bureau of Labor Statistics has announced that the CPI-U through September 2021 was 5.4%, has anyone plugged this in to arrive at a more accurate estimate of what the applicable 2022 amounts will be?

The Bureau of Labor Statistics has announced that the city average for CPI-U from September 2020 to September 2021 is 5.4%. Now that we have the number that is the basis for figuring the IRS COLA adjustments for 2022, I will defer to the actuaries reading this to tell us what they believe the 2022 amounts will be. See the following link from the Bureau of Labor Statistics for the basis for this number. https://www.bls.gov/news.release/cpi.t04.htm

Thank you everyone for your responses! There are so many numbers and permutations, that it is making my head spin. Apart from that, I happened to look at IRS Publication 560. On page 24, there is an excellent worksheet for the self-employed, which includes elective deferrals and catch-up contributions. This substantially makes things much clearer and really puts them into perspective.

Bird and Lou S., Thank you for your responses. At the least, I owe you an answer to Bird's question. At this point, I am simply trying to establish what is potentially available to elect as an elective deferral, from $0 to the 402(g) limit. That's all. Then the solo will elect and contribute an amount somewhere in between the two.

The IRS recently issued a TE/GE Issue Snapshot entitled "Calculation of Plan Compensation for Sole Proprietorships." This Issue Snapshot involved the calculation of earned income with respect to nonelective contributions to a defined contribution plan in the situation where the self-employed individual has made no elective deferrals and the nonelective contribution is fully deductible under Section 404. My question is, assuming that the proprietor's net income from self-employment is equal to $100,000 for 2021 and s/he has established a solo 401(k) for 2021, how do you calculate the elective deferrals? I know that for the common law employee, elective deferrals are subject to FICA withholding. By extension to the self-employed individual, I would assume that the elective deferral would also be subject to the self-employment tax on earned income. If that is the case, do you simply multiply the earned income amount by the 0.9235 (which is the amount you would multiply self-employment income to arrive at the amount which is subject to self-employment tax and then multiply that by 15.3%, leaving the balance as potentially available elective deferrals? I would appreciate anyone's thoughts on this issue.

I agree with John Feldt ERPA CPC QPA. Remember, the QNEC amount is for the missed deferral which is 50% of the 3% or 1.5% for each NHCE for each year.

I agree with all of the foregoing. I just wanted to add that the anti-cutback rule would apply only if a plan amendment retroactively eliminated or reduced a participant's accrued benefit or an optional form of distribution, unless, in the case of an optional form of distribution, such amendment is specifically authorized by IRS regulations located at Sections 1.411(d)-3(b) - (f) and 1.411(d)-4, Q&A-2. For purposes of determining whether a plan has been amended to reduce or eliminate an optional form of distribution, plan mergers, consolidations, spinoffs and transfers to a different plan are generally treated as amendments. Prospective freezing, reduction or elimination of accruals and optional forms of distribution are generally permitted, subject to the risk that the affected participants may be deemed to have been impacted by a partial plan termination and propecitvely reducing or eliminating accruals may require a 204(h) notice to be furnished to impacted participants.

Here's the situation: Company A sponsors Plan X, a multiemployer defined contribution plan. The plan allows in-service hardship withdrawals under a more liberal definition than the one used in IRS regulations applicable to 401(k) plans until recently. The plan's primary form of distribution is an annuity, with the ability to elect a lump sum, with spousal consent. Service Provider M filed an application for a determination letter with the IRS and checked that the plan was a money purchase plan. The IRS issued the letter with a caveat that the letter was conditioned upon adopting a plan amendment characterizing the plan as a money purchase plan. The plan has been consistently operated as a profit sharing plan. Company A proposes to file a VCP application with the IRS permitting the plan to be amended to be characterized as a profit sharing plan from its inception. In effect, the plan is correcting the error by plan amendment to conform to its operation. There are no additional qualification errors. Is the IRS likely to approve the proposed correction?

In the scenario you describe, I am assuming that the owner is self-employed and not incorporated. If that is the case, to know qith certainty how much can be contributed and deducted to the plan, you would need to determine the net earnings from self-employment, which can only be precisely measured at the end of the year. (I will spare you the tedium of wading through the intricacies of making that determination). That said, however, nothing precludes the owner from making a rough calculation of the net earnings on a month-to-month and a year-to-date basis and conservatively estimating the amount that may be contributed to the plan on his behalf. If more than the deductible percentage of the net earnings from self-employment is contributed, the excess amount is nondeductible in the year of contribution, but the excess may be carried forward to the following year.

I would generally agree with Lou S. Here, the methodology for the loan is important. If the usual rate ever used by the plan was prime +1, then I would have a problem with a loan charging a 1% interest rate. I know that prime is very low, but if it were done on the prime plus 1 basis before, it still would be tough to justify the change to a mere 1%. I am also aware that if the plan had other participants and charged them prime plus 1 while allowing the owners to pay a mere 1$, there would at least be a problem with discrimination in benefits, rights and features in addition to the loan being treated as a prohibited transaction and currently taxable under Code Section 72(p).

There is nothing that would compel an employer sponsoring an individually designed ESOP or any other type of qualified plan to adopt a preapproved plan. Since determination letters are no longer being issued for IDP's, the employer might want to switch to a preapproved plan to get the ability to rely upon the advisory or opinion letter resulting from the IRS' review of the volume submitter or prototype plan document. This gives the employer the assurance that the form of the plan satisfies the plan qualification requirements applicable to that type of plan. In light of the IRS' cessation of determination letters for IDPs, some law firms have taken to offering to issue opinion letters that the form of the plan satisfies applicable plan qualification requirements. However, the price for that type of letter is likely going to be very steep, possibly requiring the payment of several thousand dollars. The reason for the steep price is that the law firm is effectively guaranteeing the qualification of the form of the plan.

In case my previous post was too confusing, please allow me to replace it with the following: I represent a multiemployer defined benefit plan. Employer X previously maintained a single employer defined benefit plan for its collectively bargained employees. X negotiated the merger of its plan into the multiemployer plan in 2005. Under the merger agreement between the union covering X's employees and X, X agreed to make contributions for the underfunded portion of its single employer plan to the multiemployer plan over a 10-year period with interest. Instead, X paid the entire underfunded portion plus interest to the multiemployer plan in a lump sum in 2006. X withdrew from the plan in 2019. In assessing X for withdrawal liability, the actuary treated the lump sum contribution to the plan as an employer contribution in determining the amount of X's withdrawal liability. X has filed a request for review of the fund's assessment challenging the treatment of the lump sum contribution as an employer contribution. Did the actuary correctly characterize the payment as an employer contribution?

I represent a multiemployer defined benefit plan. Employer X previously maintained a single employer defined benefit plan for its collectively bargained employees. X negotiated the merger of its plan into the multiemployer plan in 2005. However, because there were certain underfunded portions of benefits under its plan, under a merger agreemenet between the union covering X's employees and X, X agreed to make contributions for the underfunded portion to the multiemployer plan over a 10-year period with interest. Instead, X made a lump sum contribution of the underfunded portion plus interest to the multiemployer plan in 2006. X withdraws from the plan in 2019. In assessing X for withdrawal liability, the actuary treated the lump sum contribution to the plan as an employer contribution in determining the amount of X's withdrawal liability. X has filed a request for review of the fund's assessment challenging the treatment of the lump sum contribution as an employer contribution. Does the multiemployer plan have a reasonable argument for its treatment of such amount as en employer contribution for purposes of X's withdrawal liability calculation?

I have encountered this in the past. If the reason RMDs were not made was because the recordkeeper failed to implement them, mention that and the IRS should accept it. If the real reason that the RMDs were not taken was because the owner did not want to receive them, then they are unlikely to waive the excise tax. It has to be something under the control of a third party vendor such as a recordkeeper or trustee and not because the owner did not want them or an HR employee was told not to make them for fear of having the owner cut their budget.

Overall, I agree with what MoJo has had to say. If there is a living beneficiary (whether as a result of a designation or by default), the entitlement to the account goes directly to that participant. If, however, the participant's estate is the beneficiary, then the account would be treated as a probate asset.

The IRS position is that a qualified plan is not considered terminated until all of its assets are distributed to plan participants. One of the ways of doing this is to have the plan purchase annuity contracts for all participants whose account balance exceeds $5,000. At that point, the plan assets are considered distributed to the participant (but are not yet taxable until the participant receives them) because the participant's account balance is replaced by the annuity contract, which is outside of the plan and is guaranteed by the insurance company. The purchase of the contract for the group of all participants whose account exceeds $5,000 is one of the more expeditious methods of completing the termination process.

Here are my thoughts on the matter. At the outset, BG150, I am inclined to agree with Pmacduff that the amount may have qualified as a Coronavirus-related distribution, in which case there is not improper distribution. If so, such an amount can be rolled over and there would be no problem. As a Coronavirus-related distribution, it could either be repaid or not within the three-year period. The fact that the plan was not yet amended should be of no moment since there is a remedial amendment period for the plan to adopt such amendment retroactively. Alternatively, the facts you provided did not indicate the sourcing of the amounts withdrawn (i.e., whether the withdrawal was paid from elective deferrals, safe harbor match or nonelective contributions or from profit-sharing contributions). I know that you said that the plan allows profit-sharing contributions to be withdrawn at normal retirement age. Profit-sharing contributions can also be paid at the earlier of two years (but only with respect to such contributions made more than two years before they were withdrawn) after they were made or after the participant has participated in the plan for at least five years. Another option might be to do a retroactive amendment to allow such a withdrawal. However, on balance, I think the Coronavirus-related distribution is the safer path to follow.

Thank you for your thoughts, Bird and RatherBeGolfing. While I have no doubt that the characterization of the repayment as a trustee to trustee transfer is accurate, I am not sure how that is helpful toward resolving my question. If I make any payment to a traditional IRA, does that mean that it MUST be characterized as a repayment and not a contribution, which may be deductible? Also, if there is a $6,000 total CRD, does that mean that the first $6,000 paid into the IRA MUST be a repayment and not a contribution? Or would I have the choice to limit the deemed repayment to one-third of the total CRD, depending on the method of taxation I select, with the remainder being treated as a contribution?