Lou S.

Isn't compliance with 72(p) what makes it a loan and not a distribution? Why do you not have a problem deeming a loan if it's non-compliant with one of the other conditions (amount, length of loan, amortization periods) but not for unreasonable interest rate?

Participant dies, and has both ROTH and Pre-Tax funds. Elects to rollover ROTH fund to her ROTH IRA Elects to rollover Pre-Tax funds to her traditional IRA. Custodian issues 3 checks. First check is to the beneficiary's Traditional IRA for the Pre-Tax funds. Second check is payable to the beneficiary's ROTH IRA for amount of cumulative earnings in the ROTH 401(k) source. Third check is payable directly to the participant in the amount of the cumulative ROTH basis. I have a call into to custodian about why they did this but I'm wondering is the path of least resistance is to - 1 deposit the pre-tax funds to the IRA. 2 deposit the ROTH earnings to the ROTH IRA as a death benefit rollover 3 deposit the ROTH basis to the participant to the ROTH IRA as a 60 day rollover. Note participant was not yet RMD age but beneficiary is over by a couple years, that would not impact direct rollover but would it impact her ability to do 60 day rollover? I mean I think the correct way to do this would be stop payment on the basis check and reissue to he ROTH IRA with correct 1099-R code. But since there will be no tax consequence either way, I'm trying to see if the work around is just simpler than dealing with custodian.

If you're interest rate is commercial unreasonable than I don't think the initial loan satisfies the conditions set forth in §72(p) and you would have a deemed distribution on issue of the loan, and possibly a prohibited transaction. If you look at §1.72(p)-1 Loans treated as distribution - then just before the Q&A the example assumes that everything was OK with the initial loan, including a commercially available reasonable rate of interest. Whether or not the interest rate is reasonable or not I leave for others to decide. But if a determination has been made that it is too low, I think you have a problem even if the loan itself meets all the other requirements of 72(p).

As CuseFan points out if the Plan allows for ROTh and in-Plan conversions of ROTH, then sure he could do that. If by recharaterize he means go back and change each year from pre-tax to ROTH retroactively, no.

Is your concern that he wording on timing is within 90 days after becoming a participant and you don't think you can give it to before they are a participant? Maybe an ERSIA lawyer could weigh in, but since the purpose of the SDP is to be a easily understood reading of the plan terms for the participant, I don't think either the IRS or DOL would have any problem giving the SPD at the same time you are giving the rest of the enrollment materials so the participant can make informed choices.

It seems very reasonable to provide with enrollment materials.

Well the V stands for Voluntary so you don't have to, but if you get the invite from the DOL and don't take advantage of the program, you do have a higher risk of DOL Audit, or so I've been led to believe from other threads on Benefitslink. But it sounds like you have properly reported late contributions, so I'm not sure under what theory you would file amended returns to remove them from the filings.

1 man LLCs taxed a sole-proprietor report income on Schedule C just like regular self employed. the LLC just gives an extra layer of protection as to what assets folks can go after. If you are worried, have the LLC adopt as lead employer and have his prior sole prop adopt as participating employer. That way you have the EIN from the LLC for Plan doc and 5500 but pick up all the income/service for 2024 and can use full plan year. It will all collapse back to him.

This brings up so many more questions about the TPA. I assume the 401(k) is OK on its own but that's probably not a good assumption on my part.

Because the Plan needs a Cycle 3 restatement by 3/31/2024 and they are on their list of maintained documents. It seems this TPAs implementation, document, administration, client communication, and actuarial services appear to require a bit better coordination.

The TPA's "blame" is a very wide range of outcomes in this scenario. From little to none at all if the client was non-responsive to their requests for information, though as pointed out earlier in the thread, perhaps they should have resigned if that was the case, to what were they thinking putting in a plan and not following up with the client?

Sweeping it under the rug is one option. Not sure that's the best or most ethical option but it is one option. they can fix it correctly which is probably going to be expensive, or they can pretend it never existed but I don't think I'd want to be involved with that decision or that potential client if sweeping it under the rug is the their answer. You can let them do that in conjunction with their attorneys advice. If you are an actuary, you're going to be bound by a code of ethics for your various organizations which would make it hard to have them as client and look away at the same time. And sure the Plan Sponsor who originally signed the document probably deserves the lion share of the blame in this.

That sounds ugly. Good luck. As to why now? Like I said earlier it probably got flagged as needing a Cycle 3 restatement and someone just realized they were missing 3 years worth of actuarial valuations, 5550s, and all the data. If they are going to fix it right they need actuarial valuations and testing for 2021, 2022, 2023. DFVC filing of Form 5500 for same years. 5330 Excise tax for failure to meet minimum funding for the same years. Oh and 3 years worth of contributions with penalties and interest. And this being December, they probably have accruals for 2024 as well.

That's a tough one since you could miss the April 1 RMD deadline if he doesn't back.

Did they actually sign a plan document and forget they signed it? Because if they did sign a plan document, they have created a contract that promises certain benefits to their employees. Now why this is coming up in 2024, four plan years after the first one is a mystery to me. Is this coming up now because they sent out Cycle 3 restatement letters and just realized they had no data, no valuations and no 5500s for 2021, 2022 and 2023? Now if they didn't actually sign a plan document, that's a different story because then you don't have a plan. I don't want to think about the penalties for failure to meet minimum funding or what they might owe to the plan should they have to correct this. But the client may want to consider bringing their own ERISA attorney to that meeting.

If you are doing it through EFTPS, why wouldn't you do it concurrent with the withdrawal? But as justanotheradmin points out the timing could vary wildly based on the amount of withholding and tax payers timing requirements.

Yes, if the there is no money in the source required to make the refund, that changes the calculus and you are back to my original answer.

If he has funds in his account to process the refund, I would just do it. That's the path of least resistance. Though you may find yourself in the same place when you do 2024 testing. I was assuming he was a former participant who withdrew all his funds.

See the instructions to Form 1099-R. I believe their is a section called something like "Refund after full distribution" that explains what you do. If I remember correctly you issue two (2) form 1099-Rs, once for the refund and one for the remainder of the distribution. The refund is no eligible for rollover so you need to inform the participant of the amount that was was not eligible for rollover. They will need to coordinate with their IRA custodian to do an Excess IRA contribution withdrawal, including earnings. They'll want it processed from the IRA correctly as a refund of excess IRA contribution and not a regular IRA distribution or they will wind up with two taxable 1099-Rs for the same money. I think just about every IRA custodian will have forms for removal of excess IRA contributions but finding the right person at the IRA custodian to talk to about how to do it can be a challenge.

I don't see why not if that's an election she makes and the plan can process 100% tax withholding.

Peter I don't think it matters because I'm pretty sure both the 401(K) limit and catch-up limits are calendar year limits tied to a single individual and plan year or number of plans does not matter.

The business can fund the plan from whatever revenue they have. The Minimum Required Contribution to the Plan must be made in cash. The benefits that accrue to participants in the Plan have to be based on W-2 wages or Self Employment earned income. If the business's only income is on Schedule E it's likely there are no benefits to accrue to employees.

As Paul says, optional, not required. But track your elections so you can incorporate them into the plan document. Or if you've already executed your SECURE Amendment, make sure it does what you want it to do.

It depends. Will any of the income be paid as earned income reported on a Schedule C and subject to SE taxes or will he maintain a corporation that will pay him a W-2 salary out of the incoming payments? Or will it all be recovery of basis and long term capital gains in the business? Probably need to talk to his accountant. if he's not going to have any Earned income or W-2 wages, then the answer is probably a hard no. If it's being paid as a "consulting fee" that he'll get a 1099-MISC and run it through a Schedule C or his corporation, it's probably yes.

Well for 2023 you can test otherwise excludable separately so you shouldn't have an ADP testing failure. For 2023 you'll need at least a top heavy minimum for the employee and a QNEC for the missed deferral opportunity. But you should be able to self correct under recent IRS guidance and the most recent EPCRS procedure. For 2024 the solo-k should just be restated, no need to open a 2nd plan. Look at the EPCRS procedure for any additional missed deferral opportunity than may be required. You are also going to have 401(k) testing and TH minimum so you might want to consider adding a 3% safe harbor non elective prior to November 30.