Vlad401k

We have an employer who owns 2 companies: 1) Company A: has employees. Currently has a 401(k) plan. 2) Company B: has no other employees besides the owner. Currently has no plan. Can the owner set up a SIMPLE IRA for company B? Based on my research, it seems like it's not possible, but wanted to make sure. Thanks,

We have 2 plans (A and B - they are part of a Controlled Group) that we are trying to test separately. They fail Ratio Percentage Test when tested separately. My question is how should the Average Benefit Test be done? Based on my research, the correct approach is one of these 2 ways: 1) Average Benefit Test is done on an aggregate basis (so, the contributions of all employees in both plans are taken into account). If the ABT is passed this way, then the plans can be tested separately. 2) Average Benefit Test is done by considering all contributions of Company A and $0 and 0% for Company B's participants (since none of the participants of Company B are benefiting under Company A). And, the test is also done for Company B (in which case, all contributions of Company A participants are counted as $0 or 0%). Which way is the correct way to test Average Benefit Test for a Controlled Group where we would like to test each plan separately for compliance testing? Thank you!

We have a plan where only 1 person (100% owner) was a participant. The plan's assets never exceeded $250k, so no Form 5500 has been filed in the past. The plan terminated on 12/31/2023 and the owner took a full distribution in April of 2024. We'll file one Final Form 5500-EZ - for 2024. I have a couple questions: 1) Since the owner technically has a termination date of 12/31/2023 (plan's termination date), is 8955-SSA form required for 2023? Is the 8955-SSA form required for 2024? 2) The SAR is not required for any year (including 2024) because this is a Solo 401(k), correct? Thanks!

A Safe Harbor Match plan currently has no allocation conditions for Profit Sharing and the formula for Profit Sharing is defined as pro rata. Can the plan change the formula to New Comparability - One Group per Participant mid-year? No profit sharing has been funded to the plan yet in 2024 and the plan document defines the period for determining the amount of an allocation of Non-Elective Contributions as End of Plan Year. Thanks.

We have a Safe Harbor Non-Elective plan that wants to terminate the plan in January of 2024. The plan's only participants at this point are the owner and his spouse. What would be the requirements to terminate the plan? The owner would like to terminate the plan as early as possible. Thank you.

We have a new plan with 2 participants. One of the participants is a 100% owner. The other one is an HCE. There have been no contributions funded to the plan so far. The owner would like to fund at least 3% to herself. Would it be possible to exclude the non-owner HCE (by division, for example) and not have to fund the 3% Top Heavy Minimum to this participant? Or would the excluded HCE still be counted in the Top Heavy Test and therefore would have to receive the 3% minimum? Thanks.

I have a question about if this plan can file using Form 5500-EZ. There are 2 people in the company: 100% owner and his child. The child does not yet qualify for the 401(k) plan because he has not met the eligibility requirements (the plan requires participants to be age 21 and the child is not yet 21). Since the 100% owner is the only participant in the plan, can a Form 5500-EZ be filed instead of Form 5500-SF? Below is the text from the 2022 Form 5500-EZ Instructions: "1. Covers only you (or you and your spouse) and you (or you and your spouse) own the entire business (which may be incorporated or unincorporated); or 2. Covers only one or more partners (or partners and their spouses) in a business partnership (treating 2% shareholder of an S corporation, as defined in IRC §1372(b), as a partner); and 3. Does not provide benefits for anyone except you (or you and your spouse) or one or more partners (or partners and their spouses)." Thank you!

Let's say an employee makes $10,000 a year. He is not catch up eligible and he decides to contribute $9,000 as Roth in the 401(k) plan. He also would like to contribute $6,000 to a Roth IRA. Since the 401k and Roth IRA contribution limits are separate, I believe this scenario is fine (even though he's contributing more than his total income for the year into the 401(k) and Roth IRA combined). Do you agree?

Let's say there are two plans in a Controlled Group: 1) Plan A - 3 months of service required for eligibility 2) Plan B - 6 months of service required for eligibility Question 1) How would the coverage testing be done to determine if the plans can be tested separately? Would you use the appropriate eligibility for each plan (3 months for Plan A and 6 months for Plan B) for coverage testing purposes, or would you use the more lenient eligibility (3 months) to determine who is eligible and benefiting for coverage purposes? This question only relates to coverage testing done to determine if the plans can be tested separately. Question 2) Let's say the plans pass coverage testing on their own and can be tested separately for non-discrimination purposes. In this case, it's my understanding that the eligibility requirements can stay as is and don't have to be the same for both plans. So, Plan A can still have the 3 month eligibility requirement and Plan B can still have the 6 month eligibility requirement. Since they pass coverage testing separately, the eligibility requirements don't have to be consistent. Is that correct? Question 3) Let's say the plans fail coverage testing on their own and must be aggregated. Would Plan B be required to change its eligibility to 3 months (the more lenient eligibility requirement between the 2 plans)? Thank you.

Hi, we have a participant who made deferrals with 2 different plans (one of which we administer) in 2021. He contributed to Plan A (we do not administer this plan) in the first half of 2021 (until he left that company) and to Plan B (the plan we administer) in the second half of 2021. The participant is under the age of 50, so not catch up eligible. About a month ago, he contacted us and told us that he exceeded the 402(g) limit between the 2 plans and sent us a statement from Plan A showing that he contributed $9,500 with Plan A. He contributed $12,000 with Plan B, so his total deferrals for 2021 were $21,500 (so $2,000 over the limit). We processed the corrective distribution for $2,000 (plus gains/losses). He contacted us a few days ago saying that the statement he sent us from Plan A was incorrect. The correct contribution with Plan A (he also sent us W-2 to confirm) was actually $8,500 (not $9,500). So, the participant was actually $1,000 over the limit (not $2,000). He already cashed the corrective distribution check. What would be the best course of action to correct this issue? Thank you.

We have a participant who terminated service in 2020. He is 75 years old and not a 5% owner (so he didn't have to take any RMDs in the past). I understand that he did not have to take the first RMD for 2020 due to the CARES Act Waiver. However, what is the date by which he had to take the 2021 RMD. Would it be 12/31/2021 or 4/1/2022? Thanks.

Hi, We have a terminated participant who would like to transfer the loan from our 401k plan to another 401k plan. How would this process be done in terms of reporting. Would we use code "G" for the transfer of loan? Thanks,

I have a question about In-Plan Roth Conversions and the ability to take the conversions as In-Service Distributions prior to age 59 1/2. Our plan document has a specific section for In-Service Distributions of In-Plan Roth Conversions. And, one of the Options is "any time", meaning that a participant can withdraw the In-Plan Roth Conversions at any time. So, I have a hypothetical scenario. Employee A (who is, let's say 40 years of age) has been contributing Pre-Tax Deferrals to the plan. Normally, he would have to wait until age 59 1/2 to withdraw the deferrals as an in-service distribution. Instead, he chooses to do an in plan Roth Conversion (the plan document allows In-Plan Roth Conversions for all sources at any time). He then immediately (before there are any earnings) takes out an In-Service Distribution of these funds (because the plan document allows for In-Plan Roth Conversion amounts to be withdrawn in-service at any time). So, effectively, he avoided not only the 59 1/2 age restriction for in-service distributions, but also, the 10% penalty? Is this scenario allowed under current regulations? Thanks.

In 2020, a participant took a distribution and it was thought that she was 20% vested. However, in 2021 it was discovered that she should have actually been 40% vested. We've contacted the participant and she wants to do a distribution for the portion that incorrectly vested. I've done some research and it looks like the incorrectly forfeited amount must be adjusted for earnings (https://www.irs.gov/retirement-plans/plan-sponsor/fixing-common-plan-mistakes-vesting-errors-in-defined-contribution-plans). My question is how to determine the earnings on the incorrectly forfeited amount, since the participant's balance was $0 after the distribution was taken? Thanks!

I have a question about how to report the transferred participants on the SSA when the same company created a new plan and transferred some of the participants to that plan. So, the same company is sponsoring both plans. The first plan (Plan Number 001) transferred some participants to the second plan by the same employer (to Plan Number 002). The SSA instructions seem to indicate that the transferred participant must be terminated to be included for the SSA purposes (here's the language from the SSA instructions: "When the benefit of a separated participant with deferred vested benefits is transferred from one plan to the plan of a new employer"). Since these participants are not terminated (they are still employed by the same company, but are now with the other 401k plan by the same employer, would they need to be included in the SSA? Thanks!

An owner of a sole proprietorship made deferrals from compensation. However, the owner also had losses and the net compensation for the year was $0. How would you distribute the excess? Would it be using code "8" (assuming the deferrals were pre-tax)? Thanks,

A new plan is established effective 1/1/2021 (but adopted mid-year). One of the employees (who met the eligibility conditions) is terminated in the middle of 2021 (before the plan is adopted - so the employee was not able to defer to the plan) The plan is Safe Harbor Non-Elective, so this employee will receive 3% Safe Harbor contribution for the year. Would an SPD and a Safe Harbor Notice be required for this employee? Thanks!

A plan has 1 active participant who is 100% owner. However, the total participant count is 2 (one owner + another employee who still has a balance, is not an owner, but is terminated). Would a Form 5500-EZ or 5500-SF be filed? Thanks.

Company A owns 100% of company B. A person works at both Company A and Company B and owns 20% of Company A. Would this participant be considered an owner of Company B for HCE determination purposes? Thank you.

A participant had medical expense about 3 years ago. He has not paid the bill and it is now in collections. Can he request a hardship distribution request for this expense? Thanks.

A participant had a loan default in 2020 and there was a deemed distribution (he was still employed but not repaying the loan). I understand that the deemed distribution amount needs to be shown on Line 8e on Form 5500 and the Ending Balance should not include that loan amount. However, would you still include the amount of the deemed distribution on Line 10g ("Did the plan have any participant loans?")? Thanks!

We have a plan that has a short plan year for 2021. A participant exceeded the 415 limit because of the short-plan year. Would the distribution code be "E" or "8"?

A company has a plan that runs from 1/1 to 12/31. It pays employees once a month on the first of the month. An employee is hired in December of 2020 (enters the plan right away as there is no eligibility condition) and has no pay through the end of year (he receives his first paycheck on 1/1/2021). So, the employee cannot possibly defer / receive a match for 2020. Should this participant be included in the ADP/ACP test for 2020? Also, should the participant be included in the active participant count for the Form 5500 purposes for 2020? Thanks!

A participant was hired sometime in 2020, but met the entry date requirements on 12/31/2020. The compensation is $0 from entry date. The participant is due a Top Heavy minimum based on 415 compensation. How should this participant be treated for testing purposes (in terms of whether they are a participant or not - due to testing compensation of $0 - and what's their allocation rate for the General Test)?

Hi, I have a quick question about special testing rules for the ADP Test. I understand that there are 2 ways to run the ADP Test for the Otherwise Excludable (OEX) Employees: 1) Early Participation Rule (where only OEX NHCEs are left out of the test) 2) Disaggregated Plans Testing Method (where all Non-OEX employees are tested together and all OEX employees are tested together) In the ADP test, there are 4 HCEs, one of which is OEX. All HNCEs are non-OEX. I believe he plan should be tested as follows: 1) Non-OEX HCEs tested together with Non-OEX NHCEs 2) 1 HCE OEX tested by himself because there are no OEX NHCEs - this portion of the plan should pass automatically because there are no OEX NHCEs However, our testing software is testing all HCEs (even the 1 who is OEX) vs. NHCEs for the Otherwise Excludable test. I don't think that's correct as I think there should be a separate test for OEX employees because we're using the Disaggregated Plans Testing Method. Do you agree?