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Lou S.

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Everything posted by Lou S.

  1. The QACA employer safe harbor contributions have to vest over no more than 2 years, but it can be 2 year cliff if I recall correctly. as Belgarath points out other employer contributions such as a profit sharing contribution could use a different schedule such as 2/20 if provide in the document. God bless the job security of piece meal retirement legislation that brings us multiple different vesting rules for different types of plans and sources or money.
  2. I don't work on them. But since they are a type of DB Plan I would assume they would have to satisfy the RMD rules just like any other DB plan would. One way, presumably would be to start annuity payments under the normal form or optional form with spousal consent.
  3. I think you can but if you sent them checks with a 1099-R associated with it, later rolling the uncashed checks to an IRA could be problematic from a reporting standpoint, especially if there was withholding on the original check. I also assume this is their whole balance and not a series of periodic payments you are talking about. But I see no problem with cashing out small balances in a DB plan if you are following the terms of the plan document.
  4. If you are using the PBGC missing person program that is all or none as I understand it, you can't pick an chose which participants you cash out and which you send to the PBGC if that is the question you are asking. If you are buying annuities for everyone and not using the PBGC program, I'm pretty sure you can force out the under $5K (now $7K under secure 2.0?) to IRAs.
  5. If they were all NHCEs you can probably self correct by retroactive amendment to conform the document to the actual match contributed for the Plan year if they all got more than the match formula even if it's not uniform since with will clearly be non discriminatory if the extra natch only when to NHCEs.
  6. I believe you are required to File Form 10 to notify the PBGC within 30 days unless an exception applies. Filing a distress termination with the PBGC may qualify as notice, I haven't looked. But one way or another, you are going to have to involve the PBGC to terminate the Plan.
  7. If the participant dies before and election of payment, see the Plan document for payment to the beneficiary. If the beneficiary dies before the election of payment to the participant, the Participant's contingent beneficiary would be entitled to the death benefit. Assuming the participant and beneficiary are going to waive the annuity benefit and roll to IRA than assets in excess of the 415 limit will revert to the Plan Sponsor and be subject to any excise tax on reversion. If you are looking for ways to reduce the excess tax and the participant and/or beneficiary are in good health they could consider purchasing and annuity which might eat up some or all of the excess but that won't leave assets for other heirs if that's a consideration. Or they could look into merging with a company with an underfunded DB Plan and negotiate the excess assets as part of the transaction, not my area of expertise but I do know it can be done and there are some companies who specialize in that field.
  8. I believe that is called fraud if someone else signed on behalf of the wife prior to the divorce. As to the rights of the wife following the divorce, that should be address by the Qualified Domestic Relations Order (QDRO) that should be prepared and agreed to durring the divorce proceedings.
  9. A good CPA or maybe even a tax attorney would be a wise move. She could probably take legal action against her son but I'm guessing the odds of recovery on that front are quite small.
  10. But that's my point. if it was deposited to the ROTH source initially how will the Plan ever know it's not supposed to be in the ROTH sources and is not eligible as qualified ROTH distribution if there is no excess in their Plan? Plan A only had $15K and Plan B only had $15K. To each of them, it looks good. So which Plan has to recharcterize the ROTH excess over the 402(g) limit when neither exceeded it? If it was Pre-tax, you wouldn't need to worry because it would be taxed again when it is ultimately distributed and no special record keeping or tracking needs to be done. But if it's in the ROTH source, when it comes out if the participant is 59.5 and 5 years, I can guarantee you that 99.9% of plans will code that as a qualified ROTH withdrawal on the 1099-R when it comes out of the Plan unless it gets moved to a different source in the Plan. And according to the guidance above, that's not correct.
  11. RMD first, then rollover. Must have typed too fast.
  12. If the participant is RMD age, I have always processed the RMD first in terminating plans then the rollover. Edited to fix error.
  13. WRT the bold, is true even if the contribution is after tax ROTH? Was that Example written with Pre-tax deferrals is mind? Did it consider the possibility of ROTH? Maybe it did because the excess is not deductible normally so it would make sense that even though it was ROTH it would later be taxable when it comes out. That said, how does the plan even know the participant has an excess and if it does know how is it corrected? Do you move the excess (plus earnings) from the ROTH source to a Pre-tax source so it gets taxed when later withdrawn? And which Plan makes the correction? I assume the participant has to be honest and direct one plan to make the correction or otherwise the Plan doesn't know and they see no problem with the $15K ROTH.
  14. But to which plan is there an excess and how dose the Plan know there is an excess if the two plans are unrelated? It seems like a problem for the Participant rather than the Plan but not one that has an easily tracked component for the IRS to catch or the Plan to properly code future 1099-Rs. Snare indeed. Just an observation, not a suggestion to try tax fraud.
  15. Sounds like a loophole. Though I would think the excess contribution doesn't meet the definition of eligible ROTH contribution though which plan recharaterizes it somehow is anybody's guess. Maybe there is some guidance on this question but if there is, I don't where it would be.
  16. Forfeit the money (along with earnings), allocate to participants as an employer contribution or reduce employer contributions per the Plan document. It's a little unclear to me who the owner of the real estate note is. Plan holding account? Plan Pooled Account? FBO account of owner?
  17. Do you use a pre-approved plan doc? Can you ask that provider? I think most have some kind of amendment system to generate a short amendment to change the Plan Sponsor. Is the EIN changing? If yes, there is a place to report the sponsorship change on the 5500. It might also be easier to just amend the Plan to have the FL LLC as an adopting employer (that seem a clear CG), then end the participation of the NY LLC when it dissolves and have the FL LLC take over as lead adopter.
  18. I see no problem making 12/31/24 the date of termination. If you get all contributions funded and everyone paid out before then great 2024 is your final year. If you have some distributions that carry into next year you just have a final 5500 requirement because the plan is terminated and no additional contributions will be made for 2025 (other than any 2024 receivables that might be deposited in 2025).
  19. It really sounds like this does not qualify for a mid-year exception on terminating a SH plan. If he still wants to proceed, I'd suggest you refer him to an ERISA attorney for an opinion. If he's past NRA can't he just take an in-service distribution to his IRA? It sounds like he's trying to save a few bucks with the mid-year termination. You can always tell him you're happy to run a 401(k) test through date of termination and let him know the anticipated refunds.
  20. i don't think that would fall under the exception unless you can argue the employer is operating at an economic loss but if all all the employees are terminated they will have no more compensation so the 3% SHNEC is unlikely to change much except for the owners assuming there is no HCE carve out of the SHNEC in the document so why not just run through 12/31 and terminate with full 12 months? they could fund the employees 3% NEC now after the final payroll and start paying out terminated employees if that's what they are concerned about. If they are trying to save a few bucks on a final 2025 plan year an filing that seems a big gamble if the IRS challenges the SH status for 2024.
  21. You can allocate the excess to participants if the plan documents allows, in a nondiscriminatory manner.
  22. I believe this would fall under the newly expanded self-correction procedures for operational failures corrected within 2 year. I believe the fix would be to make the missed contributions along with earnings. But you can check the latest EPCRS IRS notice.
  23. Well the DB plan has a minimum required contribution which may be larger that the Schedule C net income. In that case your income for the year is $0 (probably) and you may have a nondeductible required contribution to the Plan. Depending on when it's deposited you might be able to kick the can into next year by designating different years for MRC and deduction.
  24. As JAA notes the change must be prospective not retro active. Eligibility is not a protected benefit so you could for example change it to 5/1/2024 (instead of 2/1/2024) and the amendment could grand father eligibility for all employees who had met the old the eligibility condition or effective with the change you could make all employees who do not meet the new eligibility but that can get a bit confusing tracking an employee who is eligible, then ineligible, then eligible again. Can be a communication hassle so unless there is a really goo reason for making these folks ineligible most Sponsors I have worked with change the eligibility prospectively and grandfather eligible for those who meet the old eligible at the time of the amendment.
  25. That's an excellent question and one I'm not fully sure the IRS guidance contemplated at the time. Since the effect of the rollover back in is to essentially retroactively recoup the taxes paid, I would think you would have a related rollover (if rolled back to the Plan) to the same sources that the distribution came from and you would be restoring any ROTH basis. If the participant rolled it to an IRA instead of back to the Plan in the 3 year window which was also allowed, I would assume they would need to roll $50K back to a ROTH-IRA and the remaining 50K to a traditional IRA. I believe the intent of the 3 year repayment window was to put participants in the same situation they would have been in had they not taken the COVID withdrawal (with the exception of a 0.0% rate of return on the funds while out of the Plan/IRA). Essentially you could view it as up to a 3 year interest free loan from the Plan that became fully taxable if not repaid but did not carry the other negative consequences of a participant loan default if not repaid.
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