cheersmate

Thank you for your thoughts on this. This is what I was thinking, too. The amount involved is less than $20,000. If amending returns for 2021 to capture the deduction, it would involve amending 4 returns (s-corp) and so the next thought was to just deduct it in 2022 (year deposited) even though a 2021 annual addition to the Plan. I read through a number of articles and even guidance but none that I read seemed to address this specifically (timely deposited just not deducted). Those who benefited from the contribution are employed in 2022 so there is no expectation of 404 or 415 issues.

Employer (S-Corp) extended its 2021 Tax Return to 9/15/2022, however filed it in April. In March, 2022 the Employer deposited its Safe Harbor Matching (ADP) contribution for the 2021 Plan Year. This contribution was deducted on its 2021 tax returns. On September 15, 2022 the Employer deposited its Safe Harbor Matching contribution for the 2021 Plan Year and since it had already deposited the requisite ADP Safe Harbor Match would like to deem it the ACP Safe Harbor Match (as permitted by the Plan). Q: Can this contribution be deducted on the business' 2022 tax returns or must the 2021 returns be amended to capture the deduction? The amount is well below 404 deduction limits and it is anticipated it will be well below the 2022 404 deduction limit if added to the 2022 plan year contributions.

Thank you so much Nate. Regarding the quoted text, even though the Participants received the $922.50 in their take home pay (since never recorded in payroll system)?

Please allow me to simplify the above and ask again: The employer under withheld 401k in the month of January 2021 by $922.50. The employer caught its mistake when depositing the January 2021 deferrals in January 2021 (i.e. immediately). EPCRS correction would be a QNEC = 50% of the known missed deferral however the employer deposited 100% of the missed known deferrals. Question: is it okay that correction was more than the EPCRS correction? There is no interest adjustment for lost earnings since the correction was deposited when the deferral deposit was otherwise due.

Facts: 401k Safe Harbor with Cross Tested Profit Sharing. Employer formed LLC effective 1/1/2021, was sole-prop for 20+ years prior to this. First payroll date was technically 1/12/2021, with bi-weekly payroll thereafter, however, the new LLC bank account was not yet established so all employees were paid a reasonable "Advance" on 1/12/2021 equal to estimated pay (estimated hrs * hrly rate reduced for estimated taxes etc). All employees are hourly paid. It should be noted the 401k estimated deferrals were not remitted over to the plan at this time. The plan was to reconcile all with the 1/26/2021 pay date, in the new LLC account with the new system being implemented. Thereafter the new LLC business account was established, new system set-up, and the first official payroll was processed for 1/26/2021 pay date. With this payroll, the bookkeeper logged all hours year to date (i.e. including hrs for pay date 1/12) making gross wages correct for year to date (both 1/12 and 1/26). Taxes and 401k* were determined, the "1/12/2021 advance" figures reflected, and the resulting net pay to employee determined. *Herein lies the problem: only 1/26 pay date's 401k amounts were accounted for, missing were the 1/12/2021 amounts. Total 401k reported as of 1/26/2021 $956.25 -- this amount was short by the 1/12/2021 payroll's total 401k withholding $922.50. Good news/bad news: The bookkeeper caught her mistake when she remitted the deposit over to the Plan and deposited $1,878.75 -- 1/12/2021's $922.50 plus 1/26/2021's $956.25. (This 1,878.75 matches the employee deferral elections in place and gross wages paid.) Only problem was she never went back into payroll and made adjusting entries to "account" for the correct 401k amounts remitted over to the Plan. Therefore, the three participants affected received the $922.50 in their net pay (i.e. in their pocket). Because of this the W2s are correct as issued. Questions: Can the $922.50 be deemed an employer corrective contribution and a notice issued at this time, or, should it be considered an "unallocated suspense" amount to be applied at a later date? My concern with the former is that it is more than the prescribed correction -- is this acceptable (can correction be more than guidance prescribes) or is it prohibited?? And if the latter, can the employer apply it towards the 2021 Safe Harbor (3% non-elective) contribution to be deposited by 10/15/2022? If the $922.50 can not be deemed an employer corrective contribution at the time is was deposited, a correction is needed for the missed deferral opportunity (1/12/2021 pay date). Is it the missed known amount per participant or 50% of the average NHCE deferral rate? All employees are still employed; no Correction Notice has been distributed. It is a balance forward plan. Thank you so much.

Thank you, Bird! Very much appreciated.

A cross-tested Safe Harbor 401k Plan has approximately $14,000 in forfeitures. The plan permits them to be applied towards ALL employer contributions or pay Plan expenses. The Plan is Top-Heavy. The employer does not want to contribute much if anything because 2021 was down. 1 HCE/Key employee; 6 NHCEs, 1 of whom terminated before end of year. The Safe Harbor Matching contribution plus the discretionary Matching that satisfies ACP Safe Harbor total approximately $11,000. This leaves $3,000 in forfeitures on the table. The $3,000 is not sufficient to fully fund the 3% Top Heavy Minimums - this means the employer will have to fund the difference. Since it is cross-tested the Key/HCE could provide 0% Profit Sharing for himself (Plan does not require THM for Keys) - this would then permit a zero PS allocation to the 1 terminated NHCE; fund only the 5 Active NHCE staff but this still requires some employer funding to satisfy the 3% Top Heavy Minimums to the Active NHCEs. Note: the NHCEs must receive the full 3% because the HCE/Key allocation is greater than 3% even with Profit Sharing at zero. QUESTION: Is there any prohibition in using $11,000 towards the Safe Harbor Matching contributions (ADP and ACP), and not allocate any Profit Sharing to avoid the Top Heavy Minimum trigger; use the balance of the forfeitures towards the Plan's Annual Fees (that is usually paid by the employer)? Would this be prohibited since it is avoiding the Top Heavy Minimum requirement? Thank you.

Sorry for any confusion and thank you so much. Regarding the TH -- yes, definitely all non-keys receive TH minimum as applicable. I am asking if the "bump" in allocation to the sons (HCEs) for the TH minimum (keys are included for TH allocation), which effectively is about 5.8% NEC for the year based on eligible compensation (mid year elig) means the allocation rate for at least the portion of NHCEs being tested on allocation rate basis (or all NHCEs irrespective of which portion of testing they are in) must be 5.8% rather than the 5% Gateway?

16 participant plan - 4 HCEs (2 older husband+wife, 2 teenage sons of owners, 18 and 16) and 12 NHCEs (various ages) Plan provides 401k, Safe Harbor Match and discretionary Profit Sharing by rate group (each participant is in own). There is a 12 mos/1000 waiting period but no minimum age, no minimum hours for allocation or last day required. The sons started working during covid due to difficulties with staffing... and here we are. The plan is top heavy. The Gateway is 5%. However, the sons enter mid-year and Keys are included in top heavy minimum, making their effective allocation rate when including the top heavy about 5.8%. I would like to restructure for (a)4 testing: 2 HCEs (older) and 6 NHCEs (youngest) based on cross-testing, and, 2 HCEs (teenage sons) and 6 NHCEs (oldest) based on allocation rate testing. CROSS TESTING COMPONENT: Cross Testing Rate Group 1 includes HCE husband plus HCE spouse and all 6 NHCEs*: coverage is then (6NHCEs/12NHCEs) / (2HCEs/4HCEs) = 100%, correct? Cross Testing Rate Group 2 includes HCE spouse and 5 NHCEs*: coverage is then (5NHCEs/12NHCEs) / (1HCE/4HCEs) = 166%, correct? *The NHCEs EBARs are at least as great as the older HCEs ALLOCATION RATE COMPONENT: I assumed the Plan must provide 5.8% Profit Sharing to all NHCEs due to the top heavy "skim" increase for the sons described above. Q: could this increase to 5.8% PS be limited to just the portion of NHCE staff that is included in the Allocation Rate Component testing? The Allocation Rate Group** includes both HCE sons plus all 6 NHCEs: coverage is then (6NHCEs/12NHCEs) / (2HCEs/4HCEs) = 100%, correct? **The Allocation Rate is the same 5.8% PS for the 2 young HCEs and 6 oldest NHCEs Q: Based on this above, the Plan passes, correct? Am I forgetting anything? Any need to satisfy average benefit test for cross-tested portion? Q: While the sons did not contribute 401k in 2021, could they theoretically since it is a Safe Harbor 401k? Going forward, I realize the NHCE number will flux and thus can not always rely on the bifurcated testing but for the years where the numbers are there (i.e. sufficient NHCEs), is there any risk otherwise? Thank you

Thank you everyone! No argument was ever perceived or intended and all comments are very much appreciated.

I recognize "copies of documents governing the operation of the Plan" however I asked because no where have I seen it specifically state the "Plan Document" in the portion that follows ", including insurance contracts and collective bargaining agreements, and copies of the latest annual report (Form 5500 Series) and updated summary plan description." which is "defining" what is meant by it (it being what you have in bold). It seems to me it would state "the Plan Document" along with the other items stated if copies have to be provided upon request (no just be made available for inspection).

Must the Plan Administrator provide a copy of the Plan Document (incl Amendments) if a Participant (Active or Terminated) submits a written request for it? And if so, may they charge a reasonable amount for it? It is understood the Plan Administrator must make the Plan Document along with any Amendments available for inspection at the place of business. It is also understood the Plan Administrator must provide copies upon written request of the most recent SPD+SMMs, 5500, and the Trust Agreement if requested. In this instance, the Participant (actually terminated) wants a copy of the Plan Document. The Participant has the most recent SPD/SMM, therefore it is my understanding the Plan Administrator may charge a "reasonable" fee if the Participant should request an additional copy of the SPD/SMM (maximum $0.25 per page, as set forth in DOL Reg Sec 2520.104b-30). Thank you.

🙈 so embarrassed ... I am so sorry MIKE!!!

Yikes! I corrected it, thank you so much.

Hello Mike - thank you. For clarification, the typos you pointed out are the denominators in the denominators. Happy Holidays!

5 participant plan - 3 HCEs (1 older, 2 young) and 2 NHCEs (1 older, 1 young) Plan provides 401k, 3%SHNEC and discretionary PS by rate group (each participant is in own) The Gateway is 5% (satisfied by 3% SHNEC + 2% Profit Sharing) I would like to restructure for (a)4 testing: 1 HCE (older) and 1NHCE (younger) based on cross-testing and 2 HCEs (younger) and 1 NHCE (older) based on allocation rate testing. Is the coverage for Cross-Testing component coverage: (1NHCE/2NHCEs)/(1HCE/3NHCEs) = 150%? and the Allocation Rate component coverage: (1NHCE/2NHCEs)/(2HCE/3NHCEs) = 75%? The NHCEs EBAR is at least as great as the older HCEs The Allocation Rate is the same 5% for the 2 young HCEs and 1 older NHCE -- 3% Safe Harbor Non-Elective plus 2% Profit Sharing Based on this above, the Plan passes, correct? Am I forgetting anything? Thank you

Kevin - The seller retains Safe Harbor status for the short plan year due to plan termination (in the above example it would be 1/1/2020 - 11/15/2020) since the termination is on account of a stock sale to occur on 11/16/2020, correct?

That is what I believed to be correct. I had an attorney question it and wanted to make certain. Thank you!

Solo 401k sole Participant has died and has 2 beneficiaries - his wife and his sister. Can the plan continue to file EZ? Or must it file SF?

Thank you C B Zeller. I am not sure I understand your second comment. Could you please restate it or expound on it. Thank you.

Question: is the following loan in default or still within a correction period? Participant took a loan in 4th Quarter 2020 and repayments were to commence via payroll withholding, 1st payment late December 2020, 5 Year repayment. Assuming this Participant is a Qualified Individual under CARES, loan repayments could be delayed until January 2021 at which point the loan balance plus interest could be re-amortized for a new 5 years. To date, the Participant has not made any loan repayments. Under this scenario is the cure period June 30 2021, for at least all missed loan payments January 2021 through March 31, 2021? Thank you.

Question, regarding RMD -- if use cash basis I understand his 2021 will be zero because 12/31/2020 bal is zero cash basis (also happens to be 0% vested). He will definitely have a balance 12/31/2021 even if does not defer and it will be 20% vested, because the 2020 deposit will be in the account. Based on this, is 2022 his 1st RMD therefore due by 4/1/2023 or must it be paid in 2022? The owner started the business as Self-Employed 2 mos prior to his 70th birthday - would it matter if never showed a profit till 2020? FYI, he formed LLC in 2018... elected tax as S-Corp 2020.

Thank you, C B Zeller. Question, regarding RMD -- if use cash basis I understand his 2021 will be zero because 12/31/2020 bal is zero cash basis (also happens to be 0% vested). He will definitely have a balance 12/31/2021 even if does not defer and it will be 20% vested, because the 2020 deposit will be in the account. Based on this, is 2022 his 1st RMD therefore due by 4/1/2023 or must it be paid in 2022? The owner started the business as Self-Employed 2 mos prior to his 70th birthday - would it matter if never showed a profit till 2020? FYI, he formed LLC in 2018... elected tax as S-Corp 2020. Thank you, Mike. He is zero vested 2020 Plan Year, but would be 20% vested in 2021 Plan Year.

New Plan Effective 1/1/2020 to be adopted by due date of business return, as per SECURE Act. For 2020 it will be a cross tested Profit Sharing with individual allocation rates; 2021 will include 401k with Safe Harbor in addition to the Profit Sharing. NRA is 65+5 Participation, The Plan will exclude service prior to its Effective Date for Vesting credit purposes (actual hours credited basis). Owner wants to waive the eligibility waiting period as of the Plan's effective date (1/1/2020) for any employees actively employed on that date to enable his son to be a Participant (otherwise eligible 1/1/2021). This will make for three (3) HCEs for 2020. In doing so, there are four (4) NHCEs who will also be eligible as a result of this provision (note 1 of the 4 would otherwise be eligible as of 7/1/2020). Concerns are as follows: The owner is 79 years old and will of course be subject to Required Minimum Distributions. Though the entire contribution is receivable for 2020, would the owner be required to receive a 2021 Minimum Distribution based on his "12/31/2020 valance" including the receivables (up to his vested account balance, note NRA is 65+5P to avoid 100% vesting)? The owner is able to maximize his Profit Sharing allocation (allocation rate is 100% of eligible pay) with a 5% Gateway to all NHCE staff. This same 5% Gateway to all NHCE staff affords the son a PS allocation rate of about 18% and the third HCE (unrelated) a PS allocation rate of 3%. Total PS contribution is well within the deduction limitation, all rate groups and Average Benefits Test pass. Concern here is two (2) of the four (4) NHCEs that come in under the "eligibility waiver" are terminated during the 2020 Plan Year - since the Plan excludes service prior to the Plan Effective Date all Participants are zero vested. Is this a concern, or not since all receiving same 5% allocation rate? One of the two who terminated is counted in the owner's and his son's Rate Group testing -does this impact the answer? Both, of course, are in the ABT. Finally, I will add, even if past service is counted (actual hours 2019 and 2018), the referenced two who terminated would still be zero vested due to short service/insufficient hours. Thank you.

Thank you! CuseFan