Towanda

Salary deferrals are not permitted in a SEP. If pre-tax contributions were withheld from employee pay, they must be returned to the employees with an earnings adjustment and will be taxable. If the contributions were withheld from 2025 income, you may be able to work with your payroll provider to reverse the transactions for W-2 reporting purposes once the funds are returned. Any gains on those deposits should be reported on Form 1099-R. If anything can go wrong in a SEP, it will go wrong. It's a fact

Thank you!

Sole-Prop, owner-only client comes in with a 401(k) Plan with a value of $70,000 as of 12/31/2023 They also have a pre-existing SEP valued at $190,000 as of 12/31/2023. Went "dormant," and 401(k) was adopted in a later year. 5500-EZ was not filed for 2023 If the SEP was established as a formal plan for the business at some prior date and was never formally terminated but simply went dormant, should the value be included in the asset total for determining the $250,000 threshold? 5500-EZ Instructions say the threshold determination includes "all other one-participant plans maintained by the employer." I realize we treat a SEP as no longer being "maintained" when it is no longer receiving contributions, but I'm concerned about the implications in a 5500-EZ situation . . . not that anybody would know there was a SEP because there has never been a formal filing, BUT . . . I am curious! We are taking over for the 2024 plan year. The concern is, should we also have the client file a 2023 Form 5500-EZ for the 401(k) under the Penalty Relief Program . . . ?

Just as you have in the past, send a letter letting the IRS know that the 5558 was timely submitted with the packet that was mailed on 7/30. If you want to send them your screenshots too, send the screenshots. I'm sure you know it wouldn't be wise to say you've misplaced or inadvertently deleted anything. Just let them know that the 5558 was mailed timely, and request a penalty abatement and all should be fine - as always.

. . . Although, to avoid being taxed twice in the same year for 2 RMDs, the participant can elect to take their first RMD by December 31, 2025. As a practice, we inform RMD eligible participants that they may take their first RMD by December 31 of the year they attain RMD age to avoid doubling distributions in a single tax year and bumping up their tax liability. The Required Beginning Date is a "not later than" date.

I note that 401(k)s do not backdate documents all the time. That is a scary statement. So, while I cannot address your question, I will address your statements. Only under very limited circumstances can a plan sponsor retroactively adopt 401(k) provisions, and this is newly available under SECURE 2.0. Retroactive 401(k)s are permitted beginning with the 2023 plan year for Schedule C filers who have no common-law employees. This is permitted with an unextended filing deadline in 2024. SECURE 1.0 introduced retroactive adoption for employer contribution only plans effective beginning with the 2020 plan year. While the funding deadline for retroactively adopted DC plans is the due date of the entity tax return for the applicable plan year, which includes extension, the extended funding deadline for retroactively adopted DB plans is 8 1/2 months following the end of the plan year. Be careful about quoting calendar dates. Not all plans/plan sponsors are on a calendar year cycle, and different entity types have different filing deadlines. Prior to the enactment of the SECURE Acts, all qualified retirement plans were required to be adopted by the last day of the applicable plan year, and 401(k) was a prospective provision within the plan document (and still is, with the exception noted above). Retroactive adoption and backdating are very different. Retroactive adoption is permitted under specified circumstances. Backdating is always fraud.

If the plan provides for Safe Harbor Match effective January 1, 2024, then the plan sponsor is obligated to makes Safe Harbor Match contributions with the first payroll in 2024. Just because they mislabeled the Match doesn't mean it isn't Safe Harbor. Work with the institution to recharacterize those contributions as Safe Harbor Match, because it sounds like this is what the employer intended. Easy. Applicable earnings should also be transferred to the Safe Harbor Match source. There is no reason to remove the oops Match from the plan. Just put it where it belongs.

Any TPA with an ERPA on staff is likely to handle VCP submissions. An ERPA can get Power of Attorney and prepare the submission on behalf of the client, as well as having direct conversations with the IRS if there are any follow-up items. I have prepared many a VCP, and I'm sure that is the case for most ERPAs reading this posting. While a plan sponsor isn't required to find someone to represent them, I have never seen a client yet who would tackle a VCP submission on their own. Although the submissions are fairly boilerplate, the attachments and the narratives and the process as a whole requires a certain level of expertise. My experience has been that recordkeepers step away from any issues that involve functions outside of recordkeeping / lower level plan administration processes if they are not a fiduciary. I can't speak to bundled arrangements where the recordkeepers serve as Trustee and handle TPA functions. Typically, a VCP submission is prepared because the client has made an error, but once in while you will see a VCP submission for a situation where the error was the TPA's. I recall our office prepared a group submission that was the result of a universal document error many years ago. This was so long ago that I don't clearly remember if it was our office or the document provider's fault, but the submission was required and it impacted all clients on that document, and I'm pretty sure we prepared the submission. When I say "we," that means I wasn't the lucky person who got to do that, so I just don't remember. Clearly the big question is about conflicts of interest, and I have never even considered it might be a possibility when preparing submissions, regardless of the reason. The focus is always to clear up a plan qualification issue.

An individual who is eligible to participate in the plan "solely by reason of being LTPT employee" will be the lucky winner of the 500 hour requirement for vesting purposes. Since LTPT employees aren't recognized prior to 2021, I don't see that service prior to 2021 would apply. I am, of course, using logic here. One never knows whether logic applies with our regulatory agencies . . .

We are soup to nuts, with a few exceptions: If there is a plan termination or a client has a sizable force-out project, we have an assistant in the office who manages those larger distribution projects. We also have a part-timer who handles the reconciliation of plans who use individual brokerage arrangements. The only item that would be truly "departmental" is our Document Group, who prepares plan documents and amendments. Consultants request and review the documents/amendments before they go out for signature though. We have a Support Group who handles communications with clients when their 5500s are ready for filing. They tend to spend a lot of time on the phone this time of year working with clients who have forgotten their passwords. They also managed the communication of the new login requirements for electronic 5500 filings. In our office, our CEO works directly with new or takeover plans, preparing projections and putting together plan design with few exceptions. Once this piece is complete, the plan is assigned to a consultant, and it's their baby from there. Any changes in plan design down the road are within the consultant's purview - providing clear instructions to the document department for applicable amendments. This works well for us, and our clients appreciate having a single point of contact for just about everything. If a relationship doesn't work out - and this rarely happens - a client might be assigned to another consultant in the office.

I do believe we have a document problem that will have to be addressed after October 15. This particular provision cannot work with annual entry dates. Anyone hired prior to July 1 in any given year is going to go beyond that 18-month maximum service requirement for plan entry. Again, I appreciate you bringing this to my attention. I was so focused on Rule of Parity, it didn't even dawn on me that the plan provisions were unworkable. I'm surprised the document provider would even permit the "coincident with or following" box to be checked if the plan provided for annual entry! We're going to have to examine history (this was a takeover in 2021), and figure out whether this is going to require a VCP filing. I don't have the bandwidth to whiteboard what we have in front of us right now . . . Marking my calendar for post tax-season fun!

That's an interesting point CuseFan, and one that did not even cross my mind . . . Actually, it makes me shudder just a little more.

I'm sure this question is somewhere in the archives, but I cannot locate any threads. Profit Sharing only plan. A former employee who worked from April 2013 through October 2015 was rehired in 2021. We are currently trying to find out from the employer whether this participant - although they were eligible for the plan on January 1, 2015 - received an allocation for 2015. The plan uses the Rule of Parity, which always makes me shudder a bit. My understanding is that if a participant has more than 5 breaks in service and they were not vested at the time of termination, it is permissible to start from ground zero when they are rehired. In this particular instance, the participant would have been 20% vested at termination. She is not likely to have been eligible to receive a Profit Sharing for 2015 due to her termination prior to the end of the year. (We are waiting for confirmation from employer since we do not have history). My question: Would prior vesting service but no vested benefit permit us to rely on the Rule of Parity? OR was she immediately eligible for the plan on her date of rehire in 2021 because, although she may have never accrued a benefit in the plan, she had nevertheless accumulated vesting service? Thank you!

Because a QNEC is typically a contribution made in response to a plan correction of one kind or another, do not park QNEC money in any source other than QNEC. Vesting is not the issue. You must have an audit trail. A QNEC is not a Salary Deferral. A Salary Deferral is not a QNEC. Regarding the missed Match, that is deposited into the Match source because it is treated as a Match and is subject to the Match vesting schedule.

Since the RMDs are intended to ensure that retirees eventually pay taxes on sheltered money, I doubt Roth distributions would satisfy the RMD requirements after 2023.