Lou S.

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.

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?

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.

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).

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.

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.

You can allocate the excess to participants if the plan documents allows, in a nondiscriminatory manner.

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.

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.

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.

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.

Assuming this is not a "maybe"plan, then the answer is generally no for 2024 unless you meet one of the exceptions such as operating at an economic loss or or a business transaction such as sale or merger. In both cases you generally have to give 30 days advance notice to the the employees and make the SH contributions through such time in the notice. See IRS notices 2016-16 and 2020-52 for additional information on midyear SH changes.

If the plan only covers HCE (no NHCEs eligible or required to be in coverage testing) you can discriminate against one HCE over another, assuming the document allows. If the Plan is not Top-Heavy, then you could give the allocation just to the Owner like you propose and it will pass testing as the plan does not cover any NHCEs. You'd just need to be mindful of other limits like the deduction limit, 415 limit and top-heavy minimum should the Plan become top-heavy.

I'd have to go back and check the IRS notice that covered this but I think you can terminate or merge out due to business transaction I don't think it mentions anything about a freeze so I think the safer course would be termination as of 6/30 (date of the business transaction) or keep the plan open through 12/31 with the owner as only active participant. And you don't state but keeping the option to close terminate after the transaction makes this look like an asset sale and not a stock sale. Termination generally creates a short plan year with prorated limits, keeping it open gives you the full year limits on comp and 415. Also check on how your limitation year is defined in your termination amendment. Lastly, if you do decide you want to freeze, I do not believe freezing creates a situation where you are required to prorate limits in and of itself, in that case I think you still have a full plan year and get the full 401(a)(17) and 415 limits. If there is some guidance I'm missing in that area I'd love to get a citation so I can squirrel it away for future reference.

What authority do you have to to treat it as an Employer Contribution subject to taxation at withdrawal an not as After-Tax basis? Just because it's easier for the Plan to do so, does not mean that is the correct way to treat it.

That's how I see it. And remember the MRC needs to be funded in cash. I would think that even the IRS bought the "memo" argument they might challenge the MRC as being in the form of a Promissory Note instead of a cash contribution. Just another argument for having a clean paper trail of events.

I'm with Bird, do the steps correctly to best protect the sponsor and plan, don't skip step because you think it gets you to the same spot. 1 Loan to participant in accordance with the Plan's loan program. 2 He can do want he wants with the money, including loaning it to the corporation. Let him work out those details with his CPA and or attorney. 3 Have the Plan Sponsor make the MRC (presumably $50K in this case). That way you have a clear paper trail should the IRS audit the plan.

That's an excellent question and I'm not sure I have the answer as everything I've seen references vesting and accrual service and I have not seen the term eligibility service. However it seems the intent of USERRA is to put rehired employees in a similar position they would have been in had they not been called to active duty so my gut feeling is that they would have a retro active entry date of the date they would have entered had they not been called up.

Unless the Plan excludes them somehow, I don't see why they would not be an eligible employee if they were rehired as a W-2 employee. Now if you are wondering about what compensation is eligible for Plan benefits, again that would be defined in the Plan document.

I have never filed an 8955-SSA for an owner only plan. Hopefully it's not required. SAR is not required for EZ.

You can use statutory exclusions of 21 & 1 with dual entry for testing if that's what you are asking.

A business (sole prop, partnership, corp, etc.) must be the sponsor of a qualified plan such as a 401(k) Plan. If the plan never has contributions other than the initial rollover, the IRS could challenge the position that the plan was intended to be a permanent retirement plan from it's onset. Now if they are expecting earned income in the future to make contributions to the plan and are establishing the plan now to accept rollovers with the expectation of future contributions, keep good business notes to show the plan was intended to have contributions because plan permanency is a facts and circumstances gray area sometimes. But if they are just expecting passive income going forward, then this probably won't pass the smell test.

It needs to be spelled out in the Plan Documents. And I believe in a manner that does not allow for discretion.

That's what I see on based on IRS guidance as an approved correction. You can try other solutions using VCP or refer them to an ERISA attorney who may have other solutions. You might also check the IRS guidance to see if there is a de minimus amount that doesn't doesn't need to be allocated. Like if the QNEC for an NCE is under $X you can allocate to other NHCEs? But I don't know if that's a thing or not, just spitballing some ideas for you.

I think your answer is found in this similar thread just started. I think you will need 3 things - #1 Refunds with earnings. #2 Form 5330 #3 1:1 QNEC equal to the total refunds allocated to eligible NHCEs