Vlad401k

Lou, So, what you're saying is that it should be code "8" as it's distributed in 2016 (even though the excess occurred in 2015)? Any other opinions on this distribution? I would tend to agree with Lou on this, but would like to see what everyone else thinks. Thanks.

We have one participant who was terminated during 2015 and received a large severance check. He had deferrals withheld on that check even though he was not allowed to (since he's no longer a participant). How do we handle the distribution of these excess deferrals in the plan? Should we simply use code "8" and have the amount distributed be taxable for 2016 or do we need to use code "P" for the amount contributed (taxable for 2015) and code "8" for any earnings (taxable in 2016)?

One of our clients made a mistake with an elective deferral for one of their participants. This participant wanted to put in a rather large (a few thousand dollar) contribution at the end of the year, but somehow the request was not processed due to payroll company error. It's now past the end of the year and the participant missed out on maxing out their elective deferrals for 2015. They also did not receive the match that was attributable to that contribution. What should be the correct correction method? I realize that there was recently a revenue procedure from the IRS stating that if the error is corrected within the first 3 months, the QNEC is not required to replace the missed deferrals. However, the match that would have been attributable to the deferrals is still required, correct? Thank you.

We do not know yet. Assuming the son is the beneficiary, does he immediately become HCE? Does the father also become an HCE by attribution? What if someone else is the beneficiary, like a charity. Does no one receive the ownership interest in that case?

Now I'm rethinking my position... if the trust is irrevocable, is the father even considered an owner? Assuming all of his shares are in the irrevocable living trust, doesn't he surrender all ownership of those assets? Are the beneficiaries of the irrevocable living trust considered owners?

We have a situation where a father is an over 5% owner in a company. He has a son who works at the company as well. So, the son should automatically be an HCE by attribution. However, the stock shares that the father owns are in an irrevocable trust! The question is this: is the son still considered an HCE? My thinking is that the fact that the trust is irrevocable should not affect the ownership and the son is still an HCE. What do you think?

We have a participant in a 401k plan who recently deceased. He was married and his wife wants to know what will happen to the outstanding loan balance. Our plan document does not provide guidance regarding this particular provision. Will the loan be taxable to him, his estate or to her (the beneficiary)?

I have a quick question about the Roth Distributions... Let's say a participant takes a partial distribution, does basis leave first or is the distribution taken pro-rata from basis and gains? It's my understanding that the treatment is different depending on if it's a 401k account or an IRA account: 1) For 401k distributions, the distribution of Roth source is considered to be taken pro-rata from the basis and earnings. 2) For a Roth IRA, the basis is considered to be taken first until all of the basis is taken out. Once all of the basis leaves the account, the earnings will have to be pulled. Is my line of thinking correct?

Let's say a participant terminates employment on 1/1/2010 and he's 50% vested in the matching portion of the account, can the plan forfeit the non-vested balance right away? I know that the IRS states that the forfeiture of more than 0% but less than 100% vested account can be recognized at the earlier of 1) 5 years of break in service and 2) participant electing a distribution. Is it possible for the plan document or the adoption agreement to have language that allows to forfeit the account before such date occurs?

Let's say a participant has 2 IRAs and needs to take an RMD this year. I know that he can take the RMD from just one of the IRAs (unlike the requirement to take RMDs from each 401k plan). My question is this: can this participant take a direct rollover from one of the IRAs first, before taking the required RMD for the year? Let's say the participant has $10,000 in each of the IRAs and his RMD for the year is $1,000. Can he rollover $5,000 from one of the IRAs early on in the year and then later take the required RMD of $1,000 from one the IRAs, or must he first take an RMD and only then be allowed to rollover?

Any thoughts?

Thanks for your help. In regard to compliance testing, do you know if the plans have to be aggregated for anything else other than the top heavy test?

I have a quick question regarding Control Groups. Here's the scenario: Company A did an asset purchase of Company B. They now form a control group. Company A has a SEP IRA and Company B has a 401k. Can both of these plans be maintained under this scenario?

We have a participant who exceeded the 402(g) limit by about $4,000 for 2015. Now, we want to process the corrective distribution for him. He's had a net loss for the year. I have 2 questions in regards to this distribution: 1) I believe the IRS allows for any reasonable method to calculate the gain/loss. I'm trying to figure out what's best to use as the "beginning date" of the failure for gain/loss calculation purposes. Would setting the beginning date as the date on which the participant first exceeded the 402(g) limit be reasonable, or must the whole year be used (until the date of distribution) for gain/loss calculation purposes? 2) Do we simply send out the check and 1099-R that's adjusted for the loss? Would the IRS know that there was a loss when they see that the 1099-R amount is less than the amount by which the participant exceeded the 402(g) limit?

A participant in one of our plans contributed over the 402(g) limit for 2015. We're working on doing a distribution of the excess right now. How would you calculate the gain/loss? Would you consider the date when the deferral first exceeded the 402(g) limit as the start date and the date of distribution as the end date for gain/loss calculation purposes? Also, there were SafeMatch contributions associated with these excess deferrals. Do you calculate the gain/loss for those as well?

Let's say a plan excludes all years of vesting service prior to age 18. How does that provision actually affect a participant. Let's say someone turns 18 during the plan year. While the participant worked over 1,000 during the whole year, the participant only worked 500 hours since turning 18 (the plan required 1,000 hours to get a vesting year of service). Does the participant get full vesting credit for that year since he turned 18 during the year, or are the hours prior to his 18th birthday excluded for vesting purposes?

Could someone please confirm if I'm correct in regards to this procedure of rolling Traditional 401k funds into a Roth IRA? 1) Code "G" will be used for this distribution. 2) The total distribution amount will be included as "taxable income". However, taxes don't actually have to be withheld at the time of the distribution. The taxable amount will simply be added to the participant's ordinary income for the year. 3) There will only be 1 1099-R issued. Do you agree with all 3 of these procedures?

The title basically says it all. Can a plan that does not allow Roth Deferrals allow Roth Rollover into the plan or is that not permitted?

Thanks Lou. Could you please enlighten me what the 11(g) amendment is and how it applies here? Appreciate the help.

Let's say the plan is cross-tested and the owners want to max out and give themselves the profit sharing contribution that will bring them to the 415 limit. The plan gives a 3% Safe Harbor non-elective contribution as well. However, there is an allocation condition (have to be employed on last day of the plan year to receive an allocation) on the regular profit sharing contribution. A few people were terminated during the year and while they receive the Safe Harbor non-elective, they are not entitled to the regular profit sharing because they didn't meet the allocation condition. Because they don't receive the regular profit sharing contribution, the plan fails to allocate the minimum gateway. My question is this: can the document be retroactively amended in 2015 in order to remove the allocation condition and allow all the employees to receive the regular profit sharing contribution?

We have a Safe Harbor plan that does not currently allow for In-Service distributions. The owner needs to take money out of his plan in order to help his business and be able to maintain the 401k plan. If he won't amend the document, he will have to terminate the plan. I've read a lot about amending the Safe Harbor plan mid-year and because in-service distribution amendment was not on the list of allowable amendments, which leads me to believe that this amendment is not allowed. However, I've also heard people on here comment that amendments like that should be allowed for a Safe Harbor plan and the whole restriction was not meant to be an exhaustive list of all possible amendments. What is your opinion? Do you think the owner should be able to amend the plan mid-year?

Company B did an asset purchase for Company A and acquired Company A's employees under "same desk rule". What should the board of resolution language be for this amendment?

Can a participant request a distribution of RMD that's greater than the required minimum if the plan does not otherwise allow for in-service distributions? It is my understanding that the plan has to distribute just the minimum and anything above that is not allowed (as long as in-service distributions are not allowed). Would you tend to agree with that? Also, do you use 10% as the default withholding (plus state withholding) if there was no indication of what the participant would like to withhold?

A participant chose to enroll in the plan 3 years ago. Let's say they chose to defer 4% of comp. From my understanding, a QNEC of 50% of that (2% of comp) needs to be made by the employer for these 3 years as well as any missed match/profit sharing. My questions is this: the IRS states that this amount must be adjusted for the earnings. How do you calculate the earnings? There are two possible scenarios for this plan: 1) Use the earnings for the fully managed model the participant selected and calculate the returns for each contribution. This will take significant amount of work on the part of the TPA. 2) Use the VFCP Calculator for each pay-date. This will be a lot simpler to calculate. Is there any guidance from the IRS as to which method is correct? What do you think is the correct method?

Yep, that's what I was asking. I just didn't phrase the question correctly. That's what I thought as well, just wanted to confirm. Thanks.