Vlad401k

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.

The owner is over age 50 and wants to max himself out. He deferred only $4,000 for the year. Can he do a profit sharing contribution to himself of $53,000 and re-characterize the $4,000 deferral as catch up?

Let's say a participant has $1,000 Roth basis in the plan. The assets subsequently appreciate to $2,000, so there is $1,000 gain that's taxable (the distribution is not qualified). Let's say the TPA firm charges $50 to process the distribution. How would that $50 affect the gain? I see 2 possible scenarios: 1) The distribution fee of $50 reduces gain by $50 and the total gain is $950, which is also the taxable amount. 2) The distribution fee applies proportionately to the basis and to the gain. One half ($25) of the fee applies to Roth basis and the other half (also $25) applies to the gain. The gain is thereby reduced to $975. Which of these approaches seem right to you? Is there any guidance from IRS as to which approach should be used?

I've done some research on this matter, but received conflicting information. Let's say that the plan's effective date of termination is 6/30/2014. However, the last distribution from the plan actually takes place on 12/31/2014. For 415 limit ($52,000 plus catch up), as I understand it, the limit is pro-rated and is only $26,000, because the plan terminated half way through the year. 1) Is that a correct assumption? 2) As I understand it, the catch up limit is not pro-rated. Is that correct? Is the 401(a)17 limit ($260,000 for 2014) pro-rated? I've read that there are 2 ways to interpret this limit. It could be affected by the effective termination date (in which case, it will be decreased to $130,000) or the actual date of the final distribution (in which case it's unaffected). Let's say the plan document offers no guidance on this, can the plan use either way to test the plan? Finally, let's say the termination date and actual date of final distribution were 6/15/2014 and 12/15/2014 respectively. Would that have any effect on the way the limits are pro-rated. Would you simply take number of days divided by 365 or not?

1) Let's say a participant takes a distribution from a plan. His account balance is $1,000 and the TPA firm charges $50 for processing the distribution. I would assume that $950 should be listed as "Benefits Paid" (since that will be the 1099-R amount) and the $50 should be listed under "Administrative service providers" section. Do you agree? 2) Also, let's say the plan does its Form 5500 on accrual basis. At the end of the year, one of the participant's account balance is $1,000. However, for the fourth and final quarter of that year, he is due to pay a management fee of $5. That fee is not pulled from his account until the first week of the following year. Should the ending balance on Form 5500 that's attributable to this participant reflect that $5 fee (with the $5 fee listed under "Administrative service providers")?

We received a distribution request from a beneficiary. The death certificate is a copy and not original and says: "This is not an original death certificate" in large letters across the whole page. Doesn't seem like this would be an acceptable proof of death. What do you think?