Belgarath

Thanks Paul.

I'm not aware of any formal guidance on this issue - plans are often effective January 1 in such situations to avoid prorating limits, etc. Curious as to how folks generally feel about this? The EOB refers to an old IRS Q&A response at an ASPPA meeting opining that it was allowable, but of course that's unofficial. (Naturally, no retroactive deferrals allowed!) Thoughts?

I'm certainly no investment expert or tax strategist either. I have sometimes seen a strategy where part of the "diversification" is that the "aggressive" investments are converted to Roth, on the theory that if they hit a home run and get big returns, it'll be tax free. The conservative investments remain as pre-tax.

I simply cannot fathom why a PA would do anything BUT self-certification (barring additional unwelcome guidance on the subject in the future). With all the compliance/fiduciary responsibility issues that must be dealt with, the ability to offload an onerous compliance issue is a rare "win" for everyone involved, as far as I'm concerned. Will there be some fraudulent/BS "hardship" withdrawals by participants? Sure. But that's their problem.

Thanks.

We have a client where we handle their 401(k). They also have an ESOP, which we don't handle. A law firm handles (or DID handle) the ESOP/document. Short version - the business has been sold, and both plans need to be terminated. The law firm who handled the ESOP document has "resigned" from the ESOP document business. Now, we can't (or won't) amend the ESOP document. But I'm just curious - is a current ESOP termination amendment that includes SECURE/2./CARES amendment(s) similar to what is required for a 401(k) required? While they need to find another ESOP attorney or TPA, I'm just curious, and I've paid no attention to ESOP issues such as this.

Ok, thanks.

Thanks Austin. Have you asked this provider if they had such a conversation/communication with the IRS? Seems like at this late date, if the IRS was accepting this, they might just publicly provide a blanket exemption for this year?

Refund finally approved (of course.) So late that they have to pay me interest!

Yeah, it would be nice to think so! Thanks all for the discussion and input. Much appreciated.

Hi Bird - I don't disagree, except to the extent that deferring during the year, assuming they don't exceed the limit, means they are stuck with it. So suppose they defer the maximum during the year. Their ultimate Schedule C is sufficient so there's no violation of the limits. But their circumstances have changed by the time their taxes and income have been computed, and they don't WANT to have, for example, 85% of their Schedule C income deferred. The W-2 employee knows what percentage of their pay they are deferring every paycheck, and they can stop at any time. Anyway, your point is well taken. As I said, I'm unable to come up with a compliant solution that works all the time...

Ok - yes, I went back and looked at it, and I agree - no dice. So even though there's no successor plan problem if a 401(k) is terminated and a SIMPLE-IRA plan is established, you still have the prohibition on establishing a SIMPLE-IRA plan (let's say for 2024) if the employer maintains during any part of the calendar year (2024) a qualified plan with respect to which contributions are made... Curious as to whether it would be more beneficial to keep the 401(k) for the balance of this year, and switch to a safe harbor match for 2025? Are the HCE's deferring, or do they want to defer at a high level? If so, seems like the SH match would work better, if almost no one else is deferring? Facts and circumstances...

As far as I know, you can't do it. But I'm going from memory - I didn't go back and specifically check.

Thanks Paul. The "real life" big difference being that a W-2 employee typically has a pretty good idea of the compensation they will be receiving, and also has the ability to cease at any time. And most plans allow modifications at points during the year. The sole prop can't do this, and frequently has very little idea of Schedule C comp until the CPA performs the financial alchemy after the close of the year. I realize I'm preaching to the choir. So, if faced with 100 lashes from a wet noodle for failure to give an opinion, which of the following options do you think is best, under the assumption that the sole prop really can't tell how much they will be able to defer so can't use a specific dollar amount or percentage: Complete the form as "maximum" - and therefore MUST defer the maximum Complete the form as "maximum" but then defer less if they so choose Complete the form as "an amount to de determined, up to the maximum allowed - or some similar language, recognizing that this may fall afoul of the IRS interpretations. Other? I incline toward the second option, but there's lots of room for disagreement on all this excrement! I haven't ever developed a solid answer that covers reality and ensures IRS compliance. I'd LIKE to think that the IRS would accept reasonable good faith compliance, and perhaps they do, since I've neve heard of a situation where someone got stung if the election form was signed on or before the end of the year. I wonder if this could conceivably be addressed in the Cycle 4 documents when they are submitted to the IRS? On the other hand, your warning phrases seem apropos, so probably better not to! Thanks again.

Sort of an Angels dancing on the head of a pin item here. The 401(k) regulations are very clear that the sole prop (or unincorporated partner, for that matter) must complete a deferral election no later than the last day of their taxable year. Very common for such a deferral election, if it doesn't specify a specific dollar amount or percentage, to say "maximum" or something similar. Now, suppose a sole prop has an election where s/he specified "maximum." But once Schedule C income is known, s/he does not want to contribute the maximum, for whatever reason. Is this a problem? If instead, the deferral election said something more along the lines of, "an amount from zero up to the maximum allowed" or something along those lines, is this an acceptable election? Curious as to whether anyone has EVER seen or heard of the IRS opining on the issue - I have not... And please don't beat me up with arguments about how stupid the regulations are on this - I absolutely agree that it is foolishness, but I don't make the rules - just try to play by them! Thanks in advance for any thoughts.

Geez - I'm happy to continue to wallow in my ignorance - this is complex stuff! But thanks everyone for all the info.

Additional blathering - as I consider this more, the instructions for Line 15 on the 5500-SF don't mention an opinion letter for a 403(b), and rightly so, I believe, since the pre-approved 403(b) plans were given, as I recall, Advisory letters, and not Opinion letters. Revenue Procedure 2017-41 specifically states that Opinion letters for 403(b) plans will not be issued under that Revenue Procedure. Which also makes sense because the 403(b) submissions to the IRS were back in 2015... Perhaps the NEW pre-approved 403(b) plans will, when approved later this year, be Opinion letters - I dunno. But for now, I feel more comfortable with not answering Questions 14b and 15 for a 403(b). Of course, the DOL might not agree with my opinion... Without spending even more time on this stupid subject, I haven't done a truly detailed analysis, so the above isn't a truly thorough and and carefully researched thought process. Anyone with any additional off-the-cuff thoughts?

Interesting. Thanks for the info.

This is in fact a purely academic question for the attorneys out there, not related to anything, but merely idle curiosity on my part, so please don't waste any time on it. Suppose a client comes to you for a legal opinion - I don't have any specific subject in mind. Further suppose that in your best judgment, it is a coin flip - 50/50 either way. Do you say that you can't give an opinion? Or do you present both sides, with the potential advantages/disadvantages/consequences for either choice? Or is the answer to this question purely facts and circumstances, so there's no "general" method? I've often wondered about this, but such a situation has never come up - fortunately. I'd love to hear any opinions, but again, please don't waste your valuable time if it isn't a quick and easy response. Thanks.

Thanks.

So, it is my understanding that the IRS, when calculating the "turnover" rate, considers all employees ELIGIBLE to defer as participants for purposes of calculating the participant numbers. The fact that the DOL has altered the definition of "participant" for purposes of 5500 counting does not affect this IRS stance. Anyone disagree, or have other thoughts? Thanks.

This was updated/reviewed by the IRS in 2023. Just informational. https://www.irs.gov/retirement-plans/issue-snapshot-qualification-requirements-for-non-electing-church-plans-under-irc-section-401a

Thanks Luke.

The legal eagles here can tell you if this suggestion is proper or valid, but what about filing an interpleader - let the court determine when it can be paid out, and get the Plan Administrator off the hook?