Vlad401k

The plan document specifies that the $1,000 limit for mandatory cash outs and $5,000 limit for mandatory rollovers. What if the participant has about $1,020 in the account and the distribution processing fee is $50 (so the amount after the fee is $970). Would a direct distribution or a rollover be processed?

If the participant has terminated service with the company and has a disability, what would be the correct code for the loan offset? The participant is under 59 1/2. Thank you.

Let's say there is $50 distribution fee charged to participants. Can a participant take out $100,000 (taxable distribution of $99,950 after the distribution fee) or $100,050 (taxable distribution of $100,000 after the fee)? Thanks!

How would you process a Roth direct distribution due to disability? My original thought was that it should be code "B" and "3", but the 1099-R instructions state that code 3 can only be used with one other code ("D"). Thank you.

Let's say a participant has $80,000 in their 401k. He also has a $40,000 loan. The participant is terminated due to COVID and would like to take a full distribution. He's under 59 1/2. Since the limit for COVID distribution is $100,000, how would you process this request? The participant chose to have no taxes withheld on the COVID distribution and my understanding is that Code "2" is used for COVID distributions if the participant is under 59 1/2. So, I'm thinking we process the request as follows: The loan Offset of $40,000 is processed under Code 2. $60,000 of the distribution amount is processed under Code 2 (with no Federal Tax withholding) The remaining $20,000 of the distribution amount is processed under Code 1 (with Federal Tax withholding) because the $100,000 limit has been reached. Would you agree?

The brokerage company that we work with rejected a distribution request because the 7.75% MD withholding was lower than the new tax rate for Maryland. However, they were not able to tell us what the new tax rate is.

The Maryland State mandatory tax withholding has been 7.75% as long as I can remember. However, we recently were notified that the mandatory percentage is now higher for 401k withdrawals. Does anyone know what the new state withholding for Maryland is? Thank you.

A participant terminated employment due to COVID at the end of March. She has a loan outstanding and wants to take a full distribution. Once the full distribution is processed, should the loan be offset? I realize that for regular distributions, the loan would be offset once a full distribution is taken. However, can she freeze the loan until 12/31/2020 because she was affected by COVID? Thanks,

Hello, Do you know if the April 15th deadline for Distribution for Excess Deferrals (participant worked at 2 companies during the year and exceeded the Deferral Limit when we look at the total Deferrals) is now July 15th for 2020 due to COVID? It seems like it should be because that's the new tax deadline, but just wanted to make sure. Thanks.

We have a plan that had a partial plan termination in 2019 because 20% or more of the employees were involuntarily terminated. My understanding is that anyone who was terminated in 2019 (whether or not it was involuntarily) should become 100% vested. However, what if there are a few of these affected participants who already took a distribution (that was not 100% vested) from the plan? Should the amounts they forfeited be restored?

With the recent change in provisions for Hardship distributions for 2019, I understand that you now don't have to take a loan before taking a hardship. However, my understanding is that you still have to take an in-service distribution (if it's available) before a hardship. Is that correct? Let's say a plan allows the participant to take an in-service distribution only from the Rollover source. And the hardship is allowed only from the deferral source. Let's say the participant has $10,000 in Rollover source and $50,000 in Deferral source. He would like to take out a hardship distribution for $50,000. Which option do you think would be correct: 1) Process an in-service request for $10,000 and a hardship request for the remaining $40,000 or; 2) Process the hardship request for the entire $50,000 So, if the participant wants to take out more than what's allowed under the in-service conditions, can he just take out the entire amount as a hardship (assuming he has the documentation for a hardship)? Thanks.

We have a plan that has different eligibility for deferral and Profit Sharing Sources. The compensation for both is defined from date of entry. Let's say a participant becomes eligible for deferrals on 1/1/2019 and for the profit sharing source on 7/1/2019. Let's say the compensation from 1/1/2019 to the end of the year is $100,000 and from 7/1/2019 to the end of the year is $50,000. The company allocates 5% to this participant for a Profit Sharing Contribution, so the participant receives $50,000 * .05 = $2,500. However, when performing the General Test, is it the $100,000 compensation that's used or the $50,000? The DATAIR documents have a separate definition of compensation for "Plan Compensation (including for Elective Deferral purposes)" and "Compensation for Non-Elective Contributions" and I'm wondering if Plan Compensation means that it's the compensation used for all testing (including General Test). Thanks.

There is a SH plan and a Non-SH plan in a control group. They both pass coverage on their own, so aggregation for ADP/ACP is not required. However, there is at least 1 key employee in each plan, so they must be aggregated for Top Heavy purposes. The plans are top heavy. My question is this: do the Non-Key employees in the SH plan have to receive the Top Heavy minimum contribution? Since that plan is SH, my thinking is that they don't. Do you agree?

We have a participant who is terminated, wants to take a full distribution and she also has a loan outstanding. However, she does not want the loan to be offset at the time of the distribution. Rather, she wants to send a check to pay off the loan after the distribution is done. Is this allowed? My understanding is that it's not and the loan offset must be done when taking a full distribution. Is that correct? Thanks.

Hi, We have a plan that has late contributions every year for the past 3 years. It is my understanding that we can only rely on the VFCP correction method (and using the VFCP calculator) if late contributions happen at most in 2 of the last 3 years. Is that correct? If that's the case, what happens if the plan used the VFCP method in the previous 2 years (2016 and 2017) and had late contributions again this past year (2018)? Should we use the plan earnings to calculate what the participants are due? What if the plan lost money in 2018? Thank you.

Let's say there are 2 companies in a Control Group. One of them is Safe Harbor, the other one is not. What happens if they fail coverage on their own and must aggregate? I understand that you generally cannot aggregate Safe Harbor and non-Safe Harbor plans, but what would be the way to run testing if this scenario were to happen?

Let's say the plan requires 1 year of service with 1,000 to become eligible. The entry dates are 1/1 and 7/1 (semi-annual). Also, let's say if the participant did not complete the 1,000 hours by anniversary date, the plan changes the eligibility computation period to calendar year. An employee is hired in 2018 (let's say on 1/10/2018). He is terminated in 2018 before completing 1,000 hours. He is then re-hired in 2019 (let's say on 2/10/2019 - so he hasn't completed 1,000 hours by anniversary date) and works 1,000 hours in 2019 calendar year. Would he become eligible on 12/31/2019 (and enter the plan on 1/1/2020) or 2/9/2019 (and enter the plan on 7/1/2020)? Basically, would the plan switch to calendar year eligibility period because the employee did not complete eligibility by anniversary date? Or, would he be treated as a new employee as he did not complete the eligibility requirements by his initial anniversary date? Thanks.

With the new changes in Hardship Rules, is documentation from the participant required for pre-approved plans? Or can they rely on the representation requirement? Thank you.

Let's say the plan failed ADP testing and a participant has both Roth and Traditional sources. If the plan document does not state the order in which the corrective distributions should be done, how would you process the corrective distributions? Would you process it proportionately from each source or would you start with Traditional source first and then do Roth source if the amount exceeds Traditional source. Thank you.

Let's say a participant is over 70 1/2 and took a full distribution as a rollover and let's say that his RMD was not processed by mistake. What would be the correction method for this mistake if the participant already deposited the check into the receiving IRA? Is amending the 1099-R to reflect that a portion of the distribution is an RMD and requesting the participant to take out the excess from the IRA the only method? Thanks.

We have a participant who terminated during the year he turned 55. So, normally, he would have a Code 2 for the distribution. However, since he has Roth funds in the account, the code would be B2. If he had the funds in the account 5 years or more, my understanding is that he would not be subject to the 10% penalty on the earnings (because he was terminated in the year he turned 55), but would have to pay taxes on the earnings (because he's not 59 1/2). Would you agree?

I have a question. I realize that LLC can be taxed as either Partnership/Sole Proprietorship or a Corporation. What about PLC? Can it be taxed as either one as well or can it only be taxed as a Corporation? Thanks,

Let's say a plan has an in-service distribution option for matching and non-elective contributions. A plan previously did not require participants to be 100% vested to take an in-service distribution from these sources. Can a plan be amended to allow in-service from these sources only if the participant is 100% vested? Thanks!

A participant would like to do an in-plan conversion of after-tax contributions to Roth. Which code would be used for this distribution? Thanks.

What about state taxes? I'm assuming that since the participant is living in another country, state taxes won't apply (even if that participant previously lived in a state that had state tax). Would you agree?