Appleby

No one knew anything about this plan but the shareholder. The employees were not told and therefore had no opportunity to participate in either tax year. The financial planner didn't even know he had employees. Response: There is a $50 per day penalty for failure to notify employees ( the employee notification is the summary description). The summary description must be provided for every year the employer continues the SIMPLE IRA plan The employer had a 3% match. Response: OK. If the summary description had been provided, this would not have been an issue, as employees who do not make salary deferral elections would not be entitled to a match. But, by not providing the summary description, the employer has the issue in No. 1 There was no handling of the 14,000 on the tax return. There was no payroll withholding for the SIMPLE. He simply gave his financial planner 14,000 of personal money and this financial planner gave it to his guy handling the SIMPLE IRA. Response: This is not a SIMPLE IRA contribution. It is an ineligible/ excess contribution to the SIMPLE IRA, requiring correction. The SIMPLE was filed with the IRS because the shareholder got Form 5498 saying he had deposited 14,000 into his SIMPLE IRA for 2022. Response: The Form 5498 only tells the IRS that the employer made a contribution to a SIMPLE IRA. Unfortunately,that does not mean that the contribution is legitimate/valid. The SIMPLE only came to light when the shareholder asked how much he could contribute in 2023 because his financial planner wanted to know. It was a SIMPLE because the IRS received forms saying 14,000 had been deposited into the SIMPLE on behalf of the shareholder. Response: The plan is a SIMPLE if the employer did complete the SIMPLE Employer adoption agreement (SIMPLE 5304,5305 or prototype). But, there are compliance issues which include: It appears the contribution is not a SIMPLE IRA contribution, and the required annual notification was not provided to employees. Please see 4. I just don't know what to do when the money deposited was after tax money belonging to the shareholder. Nothing went through payroll for either year. The question now is how to fix this. If he takes the money out it will be a taxable distribution on the 14,000 which has already been taxed. There will be plan penalties, early withdrawal penalties and the plan will need to be closed out. I think it's flawed and was never a real SIMPLE regardless of the fact after tax money was deposited into it. Still, I have no idea what exactly to do. Response: Technically, it is a SIMPLE IRA is the SIMPLE paperwork was properly completed. But, there is a lack of compliance as noted above- but the employer might be able to get the penalties reduced- someone with practical experience working with the IRS on EPCRS issues should be able to say if and how. While the early distribution (pre-age 59 1/2) penalty is 25% for SIMPLES that have not met the two year period, I think it would be 10% in this case, because the contribution is not a valid SIMPLE IRA contribution. I hope this helps.

Are the earnings taxable to the beneficiary? . No Can the beneficiary rollover to an Inherited ROTH-IRA? Yes. But for a spouse beneficiary, it is better to roll to her own Roth IRA ( no RMDs while she is alive) if yes how quickly must the beneficiary exhaust the ROTH? Do you mean 'what are the RMD requirements? If yes, see No 2. Does the answer change if the beneficiary is a spouse v non spouse? Yes. The only option for a non-spouse is an Inherited Roth IRA. Also , must be a designated beneficiary to be eligible for the rollover. 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? Yes 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. Yes.

@Gary Lesser might know.

Going back to the beginning when the plan started seems necessary here- to ensure all compliance requirements are met. Questions that need to be answered include the following: Were employees notified and given an opportunity to make/change salary deferral elections during the 60-day period (for 2022)? Were employees notified and given an opportunity to make/change salary deferral elections during the 60-day period (for 2023)? Did the employer elect the matching or non-elective contributions? This would determine if employees were required to receive employer contributions. How was the $14,000 handled by the accountant who filed the tax return?

Agree. This is no different from a school teacher, postal employee, customer service rep, setting up a 401(k) for themself based on their wages/salary. A partner cannot adopt up an employer plan. The OP needs to engage someone to communicate with Schwab on their behalf, otherwise it might get worse. The Schwab employee who answers the toll-free line might not understand enough to provide the right solution- all the more reason to engage someone who can translate for them.

Agree. The RMD for the year of death is calculated as if the participant lived through to the end of the year. But it must be taken by the beneficiary ( 1099-R in beneficiary's TIN). The deadline is 12/31/2023- however, the excuse tax is automatically waived if it is taken by the beneficiary's tax filing due date, plus extensions.

LOL-. Let those marketers live. Agree with you on everything ( except being irritated😂 )

Agree with CuseFan too. Perform a suitability assessment. That will help you to determine what features/benefits are most important to the employer. If the owner is an employee, they will have to be covered too, if they meet the eligibility requirements. But, with a SIMPLE IRA where the employer elects the matching contribution option, the employer can exclude themself by not making salary deferral contributions.

This (your statement above) still applies. Except that the maximum period for the successor beneficiary is 10-years. I am almost 10 months late with my response, but I just came across this fro a Google search result for something else- but hopefully it helps someone.

In my experience, those that have their own prototype SEP also offer the IRS Model Form 5305 SEPs. Employers can pull the IRS model from the IRS website. Schwab Pershing No- I don't have a list. But it does sounds like a good idea

it is Six months after the date the participant reaches age 59 1/2. You want to be careful and wait a day or two after that, because some systems count it in days and not months. ( it is not anytime during the year in which they reach age 59 1/2)

Some providers partner with professionals that can help. You could start there. Good luck.

This is correct. if done by tax filing due date for the year of the rollover, plus extension, the 1099-R would show only any earnings as taxable. The amount would be distributed to the IRA owner ( not returned to the plan)

What about the withholding election? It would be a death distribution, because it is made to the beneficiary and reported under the beneficiary's TIN

It will cover his RMD- sure, because that would be his first distribution and therefore would go towards his RMD. But, he would then have an ineligible rollover of $15,000 to the Roth. Only $35,000 of that $50,000 is eligible to be rolled over.

You might be hard-pressed to find a SIMPLE 401(k) plan document. It's the little plan that could, but (appears to) never did. The question becomes, could another type of 41(k) provide the benefits that they want? If this is three partners (no common-law employees), why not an SBOK/SoloK/Individualk? You are right that SIMPLE IRAs do not allow for Roth deferrals. And, yes, like any other 401(k) a SIMPLE 401(k) would permit two accounts, one for traditional assets and another for Roth if the plan permits designated Roth contributions.

Option 1. The withholding did not get credited to the Roth IRA and is therefore not part of the Roth conversion. Only the conversion amount qualifies for the Code 2.

But then the plan would be operating under two separate plan documents. If using another provider, better to move all assets under the plan to that provide and plan document.

Hi Luke, That is true, if the beneficiary is the surviving spouse who rolls the amount to his/her own IRA/retirement account. No other beneficiary may rollover an inherited IRA or other inherited retirement account- except for a direct rollover from an employer plan- and even then the rollover must be a direct rollover to a beneficiary IRA, which retains the exception to the 10% penalty.

😂😂. Why the 😂😂 ? Most of them do issue the 1099-Rs.

Right! This needs to be done yesterday.

She gets the earlier of the two clocks. So, whichever was funded first starts her 5-year clock If she choose the inherited IRA option, the 5-year clock starts when his 5-year clock started See No 1 if she choose the beneficiary IRA option , RMDs would begin by 12/31 of 2023. Unless she elects the 10-year rule, in which case distributions would be optional until 12/31 of the 10th year following the year of death at which time the entire balance is the RMD.

An RMD is due for 2022 from the surviving spouse's IRA. The 12/31/2021 balance must be included when calculating the 2022 RMD. This 2022 RMD is calculated using the uniform lifetime table §1.408-8, Q&A5

😄- great point. They do the 5500.

Ascensus charges less than $500 per year - last time I checked- for record-keeping services for individual-K plans ( same thing- just different brand names). If your plan is held with a custodian that uses their ( Ascensus) off the shelf prototype plan document, talk to the custodian. Good luck