Lou S.

Yeah, just TPA getting angry call from participant after 1099-Rs went out. Had I looked at this thread I'd have had my answer right away. As for "solving the problem" the Plan will be telling the participant to talk to their tax advisor and IRA custodian to discuss options but informally suggesting without giving tax advice that they should be able to recharacterized their ROTH IRA as a traditional IRA if they act quickly and if that is their intention but that is a matter for them, their IRA custodian, their tax advisor, and their financial advisor. Fore some read the link is embedding but it is the recharaterization thread in the IRA sub forum.

Well it looks like I found the answer to my own question while researching this so I'll put what I found in case others find themselves in a similar situation or if there are differing opinions. I will also note this only applicable to tax years before 1/1/2018 because it appears the rules have changed and this won't be applicable beyond the due date of tax return with extension for the tax payer after the 2017 year. Under Treasury Reg 1.408A-5 the ROTH-IRA rollover from the qualified Plan can be recharacterized by making a trustee-to-trustee transfer from the ROTH IRA to a traditional IRA. There are additional caveats about earnings but it appears this is perfectly possible and allowable for any reason, including "damn I owe what in taxes?!?!?!" which does not need to be disclosed to the IRA. At least for conversions done in 2017.

So in 2017 (more than a little more than 60 days ago, I checked) a participant elected to roll over a fairly substantial pre-tax 401(k) directly to a ROTH-IRA. Despite making this election and agreeing they had read the Special Tax Notice that indicates if you elect to rollover to a ROTH IRA this will be tax able (but not subject to the 10% penalty) participant now claims they had no idea it would be taxable and wanted it to go to pre-tax IRA. Is there any "re-charaterization" option available to the participant to convert the ROTH-IRA back to a traditional IRA for 2017 that I am unaware of? I'm also 99.9% sure the transaction can't be unwound by returning the funds to the Plan and re-issuing as rollover to traditional IRA but on the 1 in a 1000 chance I'm missing something I thought I'd ask here. Nothing appears wrong with any paperwork and the funds did get to her ROTH-IRA and were cashed.

If I understand this correctly Employer 1 owns 100% of Company A so you have a parent subsidiary controlled group. Employer 1 owns 100% of Company 2 so you have a parent subsidiary controlled group.

I would think you would have to do 12 months with 3% SHNE in this situation where you are adding a SHNE to an existing PS plan because you don't have short plan year.

The lengths some folks will go to just to get a retirement plan contribution.

Consider a more appropriate default investment. But I agree with Madison on the correction of the individual in question.

He's retired under terms of the Plan document. Whether or not they threw him a party and gave him a watch.

Make hiring him for contract work contingent on him repaying the funds to the plan.

How does the participant taking the RMD from the IRA satisfy the Plan's RMD? The correct way to fix the problem would have been for the participant to direct the IRA to return the RMD amount back to the Plan and then have the Plan immediately issue the RMD. Obviously as Larry points out the best way to do it would have been to issue the RMD before processing the rollover but if that happened we wouldn't have this thread. I think processing the RMD from the Plan in December for 2017 is still a better solution than the Plan never processing an RMD which is the situation you have where the only distribution is a rollover from the Plan to the IRA.

Plan has to independently satisfy the RMD separate from any IRA or other qualified Plan. Personally I'd have taken the position that while the RMD was supposed to be processed at the time of the rollover in July there was an administrative glitch that cause it to not be processed. The glitch was self corrected by the Plan with the December RMD that was discovered when doing a review of the Plan's RMDs for 2017. Update the administrative policy to not do it in the future. Also if you do reverse the RMD you'll still need to send 2 1099-Rs, one for the that part that was supposed to be RMD from the July distribution since it wasn't eligible for rollover and one for the balance that was rolled over. Then he'll need to argue with his IRA custodian to reverse the 1099-R for the RMD he took or explain to the IRS why he has 2 1099-Rs but only claimed the income one. edited for clarity (though I may have just made it more confusing)

I think if they meet the definition of disability under the Plan and are taking a taxable distribution then you would code it 3 as a disability distribution.

Would you expect anything else from this administration?

Targeted QNEC can be allowed in the plan document. But the situation you are describing, 5+ years of failures does not appear to be a situation you can correct with a targeted QNEC. You can suggest it to the IRS in a VCP filing to correct but I do not think it is a method the IRS will approve. Though perhaps someone with more VCP experience can comment.

I agree with K2. Under the Plan document, what would keep them out of the plan?

Did the Plan have lump sum options? If so and she does want the money rolled to an IRA the "simplest" would be to send the funds to her IRA after the participant, and spouse if married, sign the necessary election forms. The question then becomes one of mechanics. Do you re-open a trust in the name of the Plan to make this one withdrawal? Does it get reported on a 5500 some how? and for what year? Who will do the 1099-R reporting? and for what year? Does this need to be "fixed" with the IRS through one of their correction programs or can you self correct? Will the deposit be treated as a Plan contribution? Do you need to notify the PBGC and if so, how? This would seem "easy" as the PBGC is generally pretty willing to work with a Plan Sponsor especially if the Plan Sponsor is simply trying to make a participant whole and the PBGC will be assuming no liability.

Maybe I'm confusing rules. I thought you had to look at highest percentage ownership at any time during the taxable year? Or is that only for HCE determination, Key Employee determination wrt Plan Year? As I said both are calendar year tax payers. Company A was owned 100% by Owner O from 1/1/17 - 10/??/17 Company A is owned 60% by owner O and 40% by unrelated 3rd party(ies) from 10/??/17 - 12/31/17 Company B is an LLC taxed as a sole proprietorship formed 11/??/17 and owned 100% by Owner O. Oh and it is quite possible Owner O has had different sole proprietorship income in the past if that matters. Both non-owner employees of Company B have been full time employees of Company A for 3+ years and will continue to be employees of Company A as well as Company B for the foreseeable future and both earned sufficient compensation in 2016 to make them HCEs in 2017 for Company A . Both employees would be the sole participants of any Plan that B may establish. I'm having a hard time not seeing a controlled group for 2017 but I'd love a citation to show I'm wrong.

Check? Money Order? ACH Debit? Wire Transfer? Take your pick.

Facts Owner - O owns 100% of Company A In October 2017 - O sells 60% of Company A to unrelated 3rd Party Owner - O starts Company B which he owns 100% Company A is an on going concern with employee staff Company B is new company that employs 2 employees, both of whom will be highly compensated plus the Owner. Owner O wants to set up a plan that excludes owner O but covers the 2 employees of Company B. Company A and Company B are both calendar year tax payers. For Calendar Year 2017 Company A and Company B are a controlled group. For Calendar Year 2018 Company A and Company B will not be a controlled group assuming there is no change in ownership. There are no affiliated service group issues to consider with Company A and B Questions 1. Can company B establish a profit sharing plan for calendar year 2017 covering only the new hired non-owner employees of B with out covering any employees of A? I believe this is yes because the newly hired employees would both be non-highly compensated employees as they had no pay from Company B in 2016. 2. Does this change if the are being hired from A where they earned over the dollar limit in 2016 to make them an HCE is company A in 2017? 3. Can they start a DB plan for calendar year 2017 for company B not covering A? I believe this is a big no as 401(a)(26) would be problematic. 4. Can Company B start a DB plan effective November 1, 2017. Have a non-fiscal year plan running 11/01/17 - 10/31/18 and ignore Company A altogether as the transaction was completed in October 2017.

Are you using current or prior year testing? Does the HCE who falls below the comp limit and become an NHCE continue to make deferrals or not? Because what ever that 1 NHCE is deferring will be your ADP for NHCEs in the year thay are an NHCE.

That is brilliant.

Consent issues aside...Yes you have to satisfy the RMD for 2017. It's possible the 6 annuity payments are more than the RMD. In a terminating DB plan where lump sums are being taken I believe the RMD is based on the lump sum divided by the applicable DC divisor. I forget exactly where it is in the 401(a)(9) regs but it is there as someone on this board pointed me to the cite last year I believe.

Top heavy coordination. Combined discrimination testing if tested together. Combined deduction limits if DB is not PBGC plan. The usually compliance testing issues.

When does he "exceed" a limit. That will determine which Plan year the catch-up is assigned to. A lot of it has to do with what plan year the contribution is tested in. He only gets one calendar year catchup limit. If he exceeds $18,000 in 1/1 - 9/30 plan year then that is catchup for calendar year 2017 and Plan Year 9/30/2017 There are other cases such as failed testing that might have the catch-up in PYE 9/30/17 or hitting another Plan limit, such as 415 that could make some of his 1/1/17 - 9/30/17 catchup in the 9/30/17 plan year. It gets important to track which calendar year catch-up is assigned to which off calendar year plans for testing and allocation reasons.

You can't elect voluntary PBGC coverage if you are not a PBGC plan.