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Lou S.

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Everything posted by Lou S.

  1. You're right I must have read it somewhere else. But I did find several other referenced that all seem to read something like this and the summaries seem to agree with both our recollection on timing. Section 317, Retroactive first year elective deferrals for sole proprietors. Under the SECURE Act, an employer may establish a new 401(k) plan after the end of the taxable year, but before the employer’s tax filing date and treat the plan as having been established on the last day of the taxable year. Such plans may be funded by employer contributions up to the employer’s tax filing date. Section 317 allows these plans, when they are sponsored by sole proprietors or single-member LLCs, to receive employee contributions up to the date of the employee’s tax return filing date for the initial year. Section 317 is effective for plan years beginning after the date of enactment of this Act.
  2. I'm confused. Has something changed with After-Tax -> ROTH conversions? My understanding is you can convert all or part of the After-Tax source to ROTH (without touching the Pre-Tax Source). But any distribution from the After-tax source including a ROTH conversion has to the prorated between after-tax basis and previously untaxed gains. The basis is tax-free, the gains are subject to taxation in the year of conversion but then become ROTH basis
  3. I believe recent Notice 2024-2 clarifies that and is in agreement with your statement.
  4. I'm not sure the IRS has opined directly in written guidance on the issue, if they have and I've missed it and I would love a citation. I believe this has come up in other topics on benefits link, often in conjunction with an unpaid working spouse who they now want to give a benefit to based on prior unpaid service or enter the plan under year of service saying the DOH was really when they started having unpaid service. So I think you are in a gray area where some will say "yes" the 415 service should count and others who will say "no" it should not count.
  5. The onus will be on them to show they paid you but it may be difficult to track down the responsible party for a plan terminated in 2010. It's possible you were paid from the original plan and you forgot but they never removed you from the SSA rolls, or they did remove you but SSA didn't update. It's possible you were paid from the acquiring plan and the same thing happened. It's possible you were a lost participant at the time of termination and your benefit was sent to an IRA in your name when the Plan was terminated, if that's the case the Plan should have records as to where the funds were sent and you could take it up with that custodian. The above is all just speculation on my part and may or may not reflect what happened in your particular case. At this point you are looking for records that are at least 13 years old on a terminated retirement plan where all the assets have presumably long since been paid out. This is a great example of why you shouldn't leave funds at your prior companies retirement plan if you can help it or if you do, make sure you keep tabs on the balance in the Plan.
  6. justanotheradmin has the details correct. All employer contributions are pre-tax by default. IF the plan allows under SECURE 2.0 for the participant to elect the Employer contributed to be deposited as ROTH and the participant makes an election for the employer contribution to be deposited as ROTH then the contributions would be deposited to the ROTH account. And yes those contributions are taxable to the participant in the year they are contributed. Perhaps there is some recent IRS guidance that I missed as to how such contributions are reported to the the employee as taxable in that year - W-2?, 1099-R?, 1099-Misc? don't know. Which is why I'm not really aware of any providers yet offering ROTH employer contribution elections until we have clear IRS guidance. EDIT - oops, I see I did miss the IRS guidance. Guess I have some weekend reading.
  7. None that I'm aware of. The only recent change I recall to the audit rules is now you need more than 100 participants WITH ACCOUNT BALANCES and not just 100 eligible. Assuming none of the 80-120 rules comes into play.
  8. I had a good one at lunch. My wife's old boss has an inherited IRA and Fidelity told him earlier this year his RMD is X; he takes X plus some more a few months ago. He just happened to log on to his account on 12/28 and Fidelity has a note your have only taken 95% of your RMD and it says he's $273 short. So he says OK, sets up a withdrawal for $273 to cover it, whatever. Gets a note - it's too late to process in 2023 it went out 1/2/24. It's not the money since I told him the penalty is $27, he's just upset at Fidelity somehow changing the amount he needed to take and if they notified him he didn't see it. We have no idea why, he's going to call them but my guess is since it's an inherited IRA where he was not the spouse they had the wrong divisor the first time.
  9. If it's two employers, it's which ever one he requests the 402(g) refund from. if that Plan had some of both, then it's whatever the Administrative procedures say. Though in this case the employee has to actively request a refund since neither plan is expected to know about the other (assuming no GC/ASG) there really isn't any reason not to give the employee the choice.
  10. Then I stand corrected if the language about the determination date is in the code or regs.
  11. Assuming he is an officer and his compensation is over the $ limit I'm not sure how he is NOT a Key employee in 2023. §416(i)(1)(A) says "at any time during the year". I agree he was not a key for 2022 and would be a non-key as of the determination date of 12/31/2022 for determining if the Plan is top heavy for the 2023 plan year.
  12. Lou S.

    Final 5500

    If you can show the residuals that are paid out on in 2024 as payables as of 12/31/2023 and a $0 ending balance as of 12/31/2023 you may be able to get a way with a final 5500 for 2023, otherwise you're in the situation bzorc describes above with a short year filing.
  13. In additional to what EBP says above, you will also lose safe harbor status for the year unless you meet certain conditions - there is an IRS notice pr Rev Proc on this, I forget which one. I think the conditions to still be SH are one of operating at a economic loss, business transaction like merger or acquisition, or dissolution of the company but I haven't reviewed it in a while so double check. But if the Owner & his wife are the only eligible participants you won't have to worry about testing issues even if you lose SH status. Also if your current safe-harbor formula in the document excludes HCEs, or at least makes it optional for HCEs, you may have no contribution requirement. Both of the above assume the owner and his wife are the only eligible, and not just the only contributing 401(k).
  14. I don't think he's eligible for PS so unless he's getting pulled in under gateway language that is causing him to go from 3 -> 5 which would be fine then I think you might need an amendment to bring him in retroactively.
  15. Sure, but she should also start with a basis equal to the rollover. And money coming out of the ROTH is basis recovery first so as long as she doesn't withdraw more than the initial rollover in the first 5 year, no taxes. At least as I understand it, assuming she doesn't already have a ROTH IRA which I don't believe she does.
  16. Eligibility is not a protected benefit but you can grandfather it for folks who already met the old eligibility but not the new, or for folks employed as of a certain date. As long as it's not discriminatory, like bringing in the just the owners kid or a newly hire partner to the firm you have a lot of flexibility, it all depends on how the amendment language is drafted.
  17. A participant starts making ROTH-401(k) contributions. Participant is over 59.5 but not yet age 73. Before he reached the 5 year aging rule he dies also before reaching age 73. Are the earnings taxable to the beneficiary? Can the beneficiary rollover to an Inherited ROTH-IRA? if yes how quickly must the beneficiary exhaust the ROTH? Does the answer change if the beneficiary is a spouse v non spouse? Beneficiary is spouse and is over age 73. Can she roll to regular ROTH IRA and treat as her own thus escaping all RMD requirements while alive? Beneficiary and Participant were married less than 1 year at time of death but she was beneficiary for many years before they were married and I assume for IRS purposes the fact that they were married at time of death is the only relevant piece to the tax questions and ability or inability to stretch the distribution as long as possible.
  18. To be honest I had not given it much thought. I suppose the rollout to IRA approach has some planning benefits with respect to the 5 year clock and basis recovery first should the funds be required before 59.5 where as in the plan a future in-service that's not qualified would be be prorated between basis and earnings.
  19. Nothing. It's just another term to describe it, though I usually hear it described as "a mega back door roth" The "mega" is in reference to being able to essentially make a ROTH contribution equal to the 415c limit through VAT and immediate conversion to ROTH instead of the non-mega? IRA limit you could get by contributing the IRA limit and converting that to ROTH (assumes you don't have pro-ration problem with other taxable IRAs)
  20. I think you are always allowed to change to BOY, it's changing to EOY where you need to meet certain conditions to get automatic approval. See Rev. Proc. 2017-56 which I don't think has been superceeded but you can double check. I think Section 3.02 is the relevant one.
  21. Sure you can have an effective date of January 1, 2023. You just cant start the deferrals until after the plan is signed and you'll only be able to defer on pay earned after the 401(k) component was put in. But no problem having an effective date of 1/1 to get full 401(a)(17) and 415 limits, especially if they are also making a PS contribution. If you have NHCEs and/or non-Keys testing and top heavy are both issues you'll need to consider. And too late to do a safe harbor plan for 2023.
  22. I think there are some complexities with converting traditional DB to cash balance and if you are using a pre-approved document you may want to read the fine print on whether or not your opinion letter covers the conversion. But like FTW, Relius Doc also has a spot in the checklist to convert from DB to CB. You might also want to double check with your software that it is able to handle the conversion from DB to CB. Not that that is an IRS code requirement, but something you might want to know before you take on the client.
  23. I think this seems reasonable. Though if you freeze Company B, you should be able to merge it into Company A at any time in 2024 no need to wait until 2025. I think you'll want to get the SH match notice out to Company B ASAP and document why it isn't be distributed 30 days before the plan year. Document why you think the notice was given in a a reasonable time and let sponsor A make the call since the IRS could take a different position based on facts and circumstance. I think to the extent that most of the employees in Company B contribute in 2024 and get the full SH Match the better your argument that the notice was reasonable and timely is likely to be accepted by the IRS should the issue come up.
  24. I don't think there is anything magical about the first of the month. But you do have some prorated limits if you run a short plan year. Though i think those limits are prorated on month with any partial month treated as full month with 1/12th the limit. Is there some reason you don't want a retro effective date to get the full 415 and 401(a)(17) limits? Like trying to keep out terminated employees so you pass coverage?
  25. I don't work with 403(b)s so if the rules are different then this isn't applicable. But my understanding is the 11g amendment has to have a tangible economic benefit for it to be valid. One approach of the 11g amendment might be to give a QMAC to the the newly included group equal to the ACP percentage of the NHCEs in the plan.
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