Vlad401k

The plan document allows for the distributions of After-Tax Employee Contributions at any time. In this case, can you rollover the After-Tax Contributions (in a 401(k) plan) directly into a Roth IRA? I believe you can and the code should be code "G". Is that correct?

A former spouse of a participant passed away. The QDRO requires the distribution in this case to be made to the estate. If the distribution is paid to the estate itself, what are the tax and penalty consequences? Is it the standard 20% Federal Tax withholding and no 10% penalty? Thanks!

A standard document was used in this case. The only participant in the main company is the owner. The other employees would not be eligible until 2024 - the year in which the owner did not contribute anything. Given these circumstances, what would be the appropriate way to fix the fact that employees at the other company were not told about the 401(k) plan? Thanks!

A Solo 401(k) plan is part of a controlled Group. The owner of the company owns 100% of another company. He is not paid through that other company but has 2 employees. The owner is not contributing anything to the Solo 401(k) in 2024, but he did not tell his employees in the other company about the 401(k) Plan and that they are eligible. What would the correction process be? Based on this link: https://www.dwc401k.com/knowledge-center/missed-deferral-opportunities, it looks like the correction method is to fund the average deferral rate of participant's group. However, nobody is receiving any contributions in the Solo 401(k) plan. Would there be no Missed Deferral Opportunity in this case? Thanks!

If an employee is LTPT (but not yet eligible for the 401(k) plan under the Plan Document's eligibility conditions), is that employee part of the Average Benefit Test or is he/she excluded? Thanks!

A follow up question... let's say the Owner's child is now eligible, but not contributing to the 401(k) plan. Based on the Form 5500-EZ instructions, it sounds like it can no longer be used and Form 5500-SF must now be used. Is that correct? Thanks!

Both former spouses work in the same company. If the rollover due to QDRO is moved from one spouse's 401(k) account to another's (within the same plan), would it be considered a Related Rollover or an Unrelated Rollover (for Top Heavy purposes)? Thanks,

I've looked into https://www.irs.gov/retirement-plans/fixing-common-plan-mistakes-failure-to-provide-a-safe-harbor-401k-plan-notice Based on that link, Lou is correct. Give the recent changes with the missed deferral QNEC (0% for less than 3 months, 25% for between 3 months and 2 years), I wanted to check if the 50% QNEC for the missed deferrals would still apply to this situation. Since that link did not provide any guidance on this question, it sounds like 2% QNEC for the missed deferrals + 4% for the missed Safe Match (both adjusted for earnings) would have to be funded. Does that sound right? Thanks!

If the Plan Sponsor did not inform an employee of their eligibility (and did not provide any 401(k) documents to the participant), what would be the correction procedure? The plan is a 4% Safe Harbor Match plan. Only HCEs deferred, so we don't know the NHCE ADP. Thanks!

It is my understanding that the QDIA is required for affected plans (that employ more than 10 employees) that use the required EACA feature under the SECURE 2.0. Is there a QDIA requirement for QACA plans also (assuming the plan employs more than 10 employees and must have an Automatic Contribution feature)? Thanks!

Peter, We categorize the code at time of distribution. Thanks,

Thank you! Another quick follow up question... let's say we know that the business at which the participant works will close down in 2025, so the participant will no longer be employed in 2025. Since the termination will take place in 2025, could Code 2 be used for this distribution? Or is it better to use Code 1 at time of Distribution? Thanks.

Let's say an employee turns age 55 in 2025. The plan is terminated in 2025, but the employee is still working for the company. If he chooses to take a direct distribution, would he get age 55 exception from the 10% penalty? Thanks.

A participant made ineligible deferrals in 2024. There is no mandatory withholding on the excess deferrals using code "8". However, can the participant choose to have taxes withheld? Thank you.

Thanks, Bill! That makes sense.

Thanks, Bill! How would it be possible to exclude Company B's Compensation in company A's 401(k) plan? Since Company B has only HCEs (two owners) and Company A has some NHCEs, wouldn't Company B fail coverage when tested separately (since no NHCEs benefit in Company B) and the compensations would have to be aggregated? Thanks.

I have a question about Controlled Group relationship. Company A is owned 100% by Owner A. Company A has a Safe Harbor 401(k) Plan and a few employees. Company B is owned 50% by Owner A and 50% by Owner A's spouse. There are no other employees in Company B and no 401(k) Plan. Would Company A and B be part of a Controlled Group? To me, it seems like they would be due to attribution. So, Owner A owns 100% of Company A and 100% of Company B (50% on her own and 50% by attribution). In this case, would we need to know Owner A's compensation from Company B as well as the spouse's compensation from Company B and test the aggregate compensation from both companies in Company A's 401(k) Plan? The spouse would also be eligible to contribute to Company's A's 401(k) Plan, correct? Thank you.

An IRA account holder (who was over the age of 73 and already started taking RMDs) passed away in 2024. A spouse rolled over the assets into an Inherited IRA, but did not take an RMD in 2024. Is the RMD Penalty waived based on Notice 2024-35 or does that notice not apply to Spousal beneficiaries? Thank you.

We have a participant who passed away in 2024. He has both Traditional and Roth balances in the 401(k) plan. In the past, he has been taking RMDs from the Roth source. For 2024, which balance would we use for RMD calculation (just the 12/31/2023 Traditional Balance or 12/31/2023 Total Balance - that includes the Roth) and can the RMD for 2024 be distributed from the Roth source to the beneficiary? The reason I ask is because I know that for Roth IRAs, the RMDs are required after the person's death, but is that the case for deceased 401(k) participants with Roth balances? According to this link from the IRS, it seems like only the Roth IRAs have RMDs for deceased participants: https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs#:~:text=Roth IRAs do not require,required from designated Roth accounts. In my opinion, only the participant's 12/31/2023 Traditional Balance would be considered for RMD calculations and the RMD must be taken from the Traditional source. Would you agree?

We have a Safe Harbor Plan that would like to add Automatic Contribution Arrangement (ACA) mid-year for 2024. I have 2 questions. 1) Can a Safe Harbor Plan add an ACA feature? To me, it seems like a Safe Harbor plan can only be a QACA, so ACA feature cannot be added. Is that correct? 2) If the ACA feature can be added to a Safe Harbor Plan, can the feature be added Mid-Year (I realize that a Safe Harbor plan cannot be changed to QACA mid-year)? Thanks.

The additional question is... can an ACA arrangement be added to a Safe Harbor Plan mid-year?

Bill, Thank you for your response. In the IRS link in my original post, there is the following quote: "However, a plan isn’t limited if the: change is adopted at least 3 months before the end of the plan year, change is made retroactive for the entire plan year, and the plan sponsor gives an updated safe harbor notice and election opportunities at least 3 months prior to the end of the plan year." Based on that link, it seems like retroactive amendment to the match formula is possible. Would you agree? The following link (https://www.irs.gov/pub/irs-drop/n-16-16.pdf) also has Example 3 on page 7 that shows that increasing the Safe Match is permissible retroactively. In my case, the Safe Harbor Match is not increased (it's still 4% total), but the formula is more favorable. Thanks.

We have a Safe Harbor 401(k) plan that has a basic match formula (100% on the first 3% and 50% on the next 2%). They would like to add the automatic contribution arrangement that would be a flat 4%. Can a Safe Harbor plan add ACA (not EACA or QACA) at 4%? Also, can they change the formula to 100% match on the first 4% instead of the current formula? Based on what I found here: https://www.irs.gov/retirement-plans/mid-year-changes-to-safe-harbor-401k-plans-and-notices, it looks like it's permissible assuming it applies to the entire year. In this case, I believe we will need to do 2 amendments. One amendment would amend the Safe Harbor formula effective 1/1/2024. The second amendment would amend the plan to flat 4% ACA, effective now. I would think that we can't combine these amendments in one, since the effective date for the Safe Harbor formula change has to be 1/1/2024, but the ACA feature was not available for the entire year, so it can't have an effective date of 1/1/2024. Would you agree? Thanks!

Let's say a participant in a 401(k) plan has $100k in Traditional sources and $50k in Roth sources as of 12/31/2023. Since RMDs from the Roth sources are no longer required in 2024, would it be correct that only the $100k Traditional balance would be considered for calculation of RMD required for 2024? Thanks.

One of our participants overpaid a 401(k) loan. The company failed to stop withholding loan payments after the loan was repaid. He then took out another loan. Is the only way to correct this mistake to send the check to the participant for the overpayment? Thanks.