Lou S.

I could be wrong, I don't work on any plans that have company stock dividends paid to participants but I believe the answer to your question is: it depends. That is if the the participant is over 59 1/2 and they meet the 5 year period, then the dividend would be a non-taxable as a qualified ROTH distribution, if the participant doesn't meet both the over 59 1/2 and 5 year period, then it would be taxable just like it was not held in a ROTH account. Is the typical 1099-R code you give on these "U" like when an ESOP pays the dividends? If yes, then if it's also Qualified ROTH I think you can use the Codes "UB" At least that's how I see the instructions to Form 1099-R and the various codes.

Key employee deferrals are indeed considered in the key employee allocation rate for determining the top heavy minimum.

I'm not sure I see something that is correctable because it doesn't look like the plan will have a "failure" if you allocate the $60 K contribution plus the $60K reallocation from the QRP, it is just that the NHCE is likely to get a windfall. Just to throw out some numbers with the following assumptions with prorata allocation capped at 415. Owner pay $305,000 - allocation $61,000 (20%) Wife HCE pay $50,000 - allocation $29,500 (59%) NHCE pay $50,000 - allocation $29,500 (59%) You don't violate 415, you don't have a deduction issue, you don't have a discrimination issue. I realize it's not ideal giving the NHCE a 59% of pay allocation but my guess is on an audit that might not be far from what the IRS would be looking for. I don't know maybe the if the wife and owner are older than the NHCE and the plan has everyone in their own rate group you can skew more of the allocation to the wife but that would depend on demographics and plan terms.

If everyone was in their own rate group, maybe you could construct a PS contribution for 2022 based on those still employed when you declare it in 2023 and still pass testing. Seems a very aggressive position to me though. But if it is simply 1000 hours, employed on the last day of the year, I don't see how you get around that.

You'll have a testing failure if you don't cover her. Plan "may" allow irrevocable election to "opt out" but it must be executed prior to the participant becoming eligible. Though I would recommend against this because you still need to include them in testing and if your only NHCE is receiving $0 and has irrevocably elected out of the plan, I don't know how you fix that testing failure. Why not just 100% vest her and move on? I mean how much can an employee who doesn't work 1000 per year cost? There are at least 3 conditions where she would become 100% despite not working 1000 hours in the future - 1 - she attains the Plan's NRA while employed. 2 - she is affected by a Partial Plan termination. 3 - the Plan is terminated requiring full vesting. There may be others I'm missing.

Good point. Maybe everything was done timely but folks just didn't turn in enrollment forms until December.

Doesn't sound like you have a safe harbor plan for 2022 if you only had one month of deferral opportunities. As for the true up, RTD, if it says to true up based on annual salary, you true up based on annual salary.

Can you get the payroll company to amend the W-2 to reflect that as a 401(k) Contribution? I don't know that that is 100% correct but it would "fix the issue"

What would the client like to do? If they want a QRP I don't think you need an amendment, you just need to send the excess assets (or some percentage of them) that would would have reverted to Employer to a QRP to reduce or eliminate the excise tax on reversion. Your other options all seem reasonable if they want to amend the excess from reversion to allocate to participants or amend the Plan to increase benefits such that there isn't an excess.

Start by reading your SPD, some plans have a 90 day window to get a distribution if you were auto enrolled and didn't want to be. If your plan does have this provision, taking advantage of that and confirming they have processed your optout form for future payrolls might be the path of least resistance. If that doesn't work, do what ESOP guy said.

See here for examples. https://www.irs.gov/retirement-plans/mid-year-changes-to-safe-harbor-401k-plans-and-notices I believe with Secure Act you can add a 3% non-elective SH up to 30 days before the PYE or a 4% non-elective SH up until the end of the Plan Year but you can't add a matching SH mid-year, that needs to be done before the PYE with the associated SH notices and timing that goes with it. And you aren't allowed to switch between SH types (matching or non elective) mid year.

Sure DB TH minimum is 1000 hours, but DC TH minimum is employed on last day of the year. So at a minimum they are going to need to get a DC TH min. But the coordinated TH language between the plans should tell them how much and which plan or plans.

My understand is the employers in a PEP are adopting employers who are participating employers in a 401(k) Plan. That is it's a multiple employer plan that diffrent employers adopt to get "simplified" administration and presumably lower asset fees due to pooling. So if you spin off mid year into a Single employer plan you would test the whole year together by aggregating the data of the two plans. And any limitations on amending mid year in or out a safe harbor would apply as if you had a single plan. Make sure you preserve any protected benefits from the plan that's being spun off and merged into the new plan. But I don't have very much direct experience with PEPs so if my understanding is off I'm sure someone on this board will correct me.

Thanks, learned something new. My general experience has been a Partnership or Sole Proprietorship than decides to become an S-Corp and in those cases I've always seen a new EIN provided by the client or CPA.

You probably have a pre-approved IRS document like mine that has a check mark for "S-Corp" as type of entity. Maybe send him that page.

jakyasar, you're on the right line. Just that the client should also have executed a deferral election prior to the deposits if he really wants to dot the Is and cross the Ts on doing it right.

Shouldn't the CPA know these things? If not you might want to discretely suggest to your client they might want to look at other CPAs.

And the tax filing deadline is one month earlier for S-Corp than a C-Corp which effects the latest date to make a tax deductible contribution for the prior year. And you probably need to amend the plan to have the new entity take over, especially if there is a new Tax ID number.

How does an eligible participant "opt out from year to year" on a CB plan? Either you satisfy the accrual requirement and get a benefit or your don't, it's not a CODA. But assuming that there was some amendment timely and properly executed such that no HCE benefits under the plan, or no HCE worked enough hours to accrue a benefit, then as CB Zeller pointed out you will automatically pass gateway and 404(a) because the HCE rate is going to be $0 and 0%. Assuming the Plan's are not top heavy then if no HCE benefits for PS or CB than your PS could be $0. If the combo plan is top-heavy, RTD on how you satisfy that in your specific situation.

I'm pretty sure that a spousal beneficiary of an Inherited IRA retains the rights to transfer to an IRA in their name or a Qualified Plan that accepts rollovers. The monies then would no longer carry the inherited IRA characteristics but be subject to the rules of the IRA or Plan to which they were rolled. The biggest draw back is losing the exception to the pre 59 1/2 10% penalty on early withdrawal as a death benefit. The biggest benefit is typically longer RMD period if the spouse is younger than the decedent.

Maybe. Have any of the employees EVER worked 1000+ hours in any year? If not you can probably test them separately as otherwise excludeable employees. But either way you are going to have give top heavy minimums.

Amend the W-2. Change the source at the custodian. Fix the problem going forward and document procedures. That seems the most straight forward and seems like a reasonable correction that should fall under the IRS self correction program.

I'm confused as to how an owner only plan has $200K wind up in unclaimed property.

I think the bigger question is how were these assets treated 20 years ago when the Plan was terminated and why are they being returned now from unclaimed property? And if you you are treating them as qualified plan assets eligible for rollover to an IRA, how are you doing so now if the Plan terminated 20 years ago and has never been updated for current law nor filed any 5500 (presumably) during that 20 year period.

I believe the attributable match has the same deadline as ADP refund though I'm not sure I can find a cite to affirmatively support that.