bito'money

Bird, IRS says for non-periodic payments, you have to include the latest marginal rate tables to assist payees to determine a rate to enter (if you don't already have that on the form), and for periodic payments you have to replicate all the steps and instructions on W4-P. Since you would have to update them every year, seems like you may be better off just giving out the actual IRS forms.

RR 2002-84 says the miscellaneous itemized deduction subject to 2% of AGI floor (which was eliminated by TJCA 2017 for the next few years) only applies if the repayment is < $3,000. If the repayment is greater than $3,000, then the taxpayer can still file for a claim of right adjustment under 1341 (which was not affected by TJCA).

I think the insurance law requiring receivership would be a state law similar to federal bankruptcy law - potentially triggering the limit on prohibited payments such as lump sums under 436(d)(2). Plan should confirm that with counsel. Assuming that's correct, if the actuary certifies that the AFTAP for the plan year in which the lump sum would be paid is at least 100% (without taking into account the segment rate stabilization relief under 430(h)(2)(C)(iv), the plan can pay the lump sum. Otherwise it can't. Presumption rules based on prior year's AFTAP don't apply in cases of bankruptcy (see 1.436(d)(4)(v)) - (so can't assume same AFTAP as last year until start of 4th month, 10% lower than last year's AFTAP at start of 4th month) - so you'd have to wait until the actuary really certifies the plan meets the above criteria to pay a lump sum during the plan year.

Karl, the receiving plan DID accept the funds when the plan's custodian cashed the check and the receiving plan has not established a procedure for reasonably concluding that the rollover is valid (per 1.401(a)(31)-1, A-14). Under A-14, if they had a reasonable rollover acceptance procedure, the plan administrator that accepted the rollover in error could distribute the amount of the invalid rollover with earnings to the EMPLOYEE. Under this rule, (1) the receiving plan administrator could send a letter to the unhelpful distributing plan to let them know the direct rollover failed and that they need to update their 1099-R reporting the rollover appropriately (to a distribution using distribution code B for a regular distribution from a Designated Roth Account, I believe), (2) then issue the check for the invalid rollover contribution plus earnings to the employee. This lets the employee decide how/whether to roll over the check amount to a Roth IRA (within 60 days). This reg. doesn't say how to handle it when the receiving plan does not have a procedure for reasonably concluding the rollover is valid - which may be something that can be fixed under EPCRS. (I think the 1099-R for the distributing plan under EPCRS would show the original invalid rollover contribution amount in box 5 - since the distributing plan should already be showing it as taxable after you notified them of the correction above, and the earnings amount if any - which hasn't been reported by anyone as taxable yet as taxable in 2a).

Let's say the employer is in a state with one of those mandatory state Roth IRA programs that exempts employers who "maintain a plan qualified under 401(a)" that covers all employees. Would the employer be subject to that state law if they maintain a profit sharing plan like this that covers all employees - but they never make contributions to it (and don't allow employees to elect to contribute 401(k) or after tax contributions to it either)? I think the answer could vary based on the state law -but this is something those who write regulations under those state laws should consider.

According to the February 2022 proposed rollover regulations (issued in connection with the proposed RMD regs), rollovers to qualified plans must be in capacity of employee. If a surviving spouse rolls over a distribution to a qualified plan, then that amount is treated as the spouse’s own interest under the receiving plan and not the interest of the decedent under the distributing plan. Thus, for example, in determining the required minimum distribution from the receiving plan with respect to the amount rolled over, distributions must satisfy section 401(a)(9)(A) and not section 401(a)(9)(B). (This would mean the required beginning date and uniform lifetime table factor would be determined based on the surviving spouse's age after the year of the rollover). If the participant wished to simply leave his surviving spouse beneficiary account in the plan, he could do so if the plan permits. In that case, RMDs timing would be determined based on the age/date of death of the deceased spouse. The RMD amount for the spousal beneficiary account would have to be determined using single life factors for spousal beneficiaries under the RMD rules applicable to his or her situation - death before or after required beginning date.

1) Appropriate eligibility for each plan to see if they pass separately. (Can test under 21/1 group separately for each plan to see if both portions pass for both plans- and if so, can continue to test each plan separately without aggregating). You only need to include those with 3 months of service under both plans if aggregating plans for testing (which you said you are not). 2) Correct. 3) When running combined coverage test use most liberal eligibility requirements (3 months) for both plans to determine those who can be excluded due to minimum age/service, but you would not be required to actually change plan B's eligibility to 3 months unless combined plan still fails coverage excluding the 3-6 month group for plan B and bringing all of those 3-6 month people excluded from plan B would be necessary to pass coverage. (Before you think about amending plan B's eligibility requirement to 3 months in a corrective amendment - make sure you test using otherwise excludible group rule to test combined plan under 21/1 population separately to see if the combined plan can pass on that basis without amending eligibility for plan B).

The answer is no. See 1.403(b)-3(d)(ii) "...a failure to operate in accordance with the terms of a plan adversely affects all of the contracts issued by the employer to the employee or employees with respect to whom the operational failure occurred". So, even if nondiscrim rules don't apply (if it's a church or QCCO under 3121(w)(3)), I believe such a failure could cause the contract to become taxable as a nonqualified annuity contract under 403(c). If they make the 8% contribution for the principal, to avoid that possibility, they may want to amend the plan doc to match what the principal's employment contract says. There's an argument that the principal's employment contract forms part of the plan document, but it would probably be safer not to have to rely on that.

I have experienced this a few times over the years. If the inquiry is just a letter from the creditor and not a court order, a letter from the plan administrator should suffice stating that benefits may not be assigned or alienated, and that death benefits under the plan are only payable to the beneficiary designated by the participant (or pursuant to the plan's default beneficiary rule in the absence of the participant making a valid affirmative designation). If it's a court order (e.g., a bankruptcy court issuing an injunction against the plan distributing the benefit), the plan administrator would typically have the plan's attorney reply along similar lines (possibly citing Patterson vs. Shumate: https://www.law.cornell.edu/supct/html/91-913.ZS.html )

When your client drinks too much tequila on Cinco De Mayo, the next morning they may end up seeing double double and start asking about the feasibility of quadruple vesting. After they sleep it off over the weekend, maybe you can talk them out of this awful idea. 😀

If he died before the required beginning date, the 5-year rule applies - not the 10-year rule. If he died after the required beginning date, the employee's remaining single life expectancy would be used to determine the annual amount you are required to pay the designated beneficiary, and the entire amount must be depleted by the end of the 10th calendar year following the calendar year of the employee's death.

FICA wages are determined under section 3121, not section 3401 (income tax withholding). Employee Pre-tax contributions to a 401(k) are included in FICA, but employee pre-tax contributions to a section 125 plan are not. Employer contributions to a 401(k) plan that are not 401(k) employee pre-tax contributions, and employer contributions that are not employee pre-tax contributions under a section 125 plan are not includible in FICA wages.

My understanding is that the 3 methods for determining the SEPP amount that would meet the 72(t) exception all require you to determine the amount required to be withdrawn each year on an annual basis without proration. See IRS Notice 2022-6. If you think about it, you don't get to prorate an RMD amount under the RMD rules because you started the payment later in the year. IRS only cares that you include the amount of the payment in gross income during the specified calendar year and they don't care when you start your distribution. Same principle would apply here.

BG5150, Yes, the seller can do. See the regulation I quoted above, which addresses the rules for crediting imputed service (and says this could be a legitimate business reason for crediting service with another employer). It's a bit of a pain to deal with because it requires some post-close administrative coordination between buyer and seller, but it's allowed, and if the buyer is willing to provide the data, those newly acquired employees may be more satisfied with their benefits than if they forfeited their employer money under the seller's plan.

I would say no. IRS says to look at all participating employees in the plan, not just those in the divested controlled group member. See the table in https://www.irs.gov/retirement-plans/partial-termination-of-plan#:~:text=The presumption of a partial,there was no partial termination. Also, crediting vesting service with the buyer (after termination of employment) needs to meet the nondiscrimination rules in 1.401(a)(4)-11(d)(3). If the buyer did not negotiate for that in the purchase agreement, then it's possible the buyer may inherit a bunch of employees who will start off with a bad taste in their mouth. In some cases, to avoid receiving "damaged goods", I have seen some buyers demand that the seller continue to grant vesting service credit post-transaction for a period of years (or vest everyone 100%) in the purchase agreement, but not always. However, if the seller didn't agree to that, it's up to them as to whether to do so for their former employees.

Peter, so what about the 401(a)(9) regs under 1.401(a)(9)-4 that say a beneficiary will not be considered a designated beneficiary for purposes of 401(a)(9) if a valid disclaimer is in effect under 2518 by 9/30 of the year following the year of the employee's death? If your plan document incorporates the 401(a)(9) regulations by reference (as some do), haven't you by default, bought into the above disclaimer regime in those regulations, and could a failure to follow a valid disclaimer under 2518 (provided by 9/30 in the year following death) potentially mean disqualification (either as a 401(a)(9) violation or a failure to follow plan terms)? Also, could a person who would receive the benefit in the event of a disclaimer sue the plan administrator (for the benefit they would have received) for not following it?

I don't think this practice is compliant with ERISA, so I'd be surprised to hear from their "compliance" department coming out from behind the curtain on this any time soon. It's probably discriminatory against NHCEs, and an operational failure (not operating the plan in accordance with its terms) to boot. Some problems with not reporting a termination status change or termination date timely can include (1) incorrect vesting if based on elapsed time (unless you override vesting percentages), (2) potentially incorrect census counts for 5500 if not reported timely - such as waiting until distribution (3) not treating the person as terminated could cause you to treat them as "wired at work" inappropriately for DOL electronic disclosure purposes (4) not allowing them to elect a distribution when they should be allowed to. Most if not all of these (except the operational failure part) would not be a problem if it's a grandfathered governmental 401(k), for example. If you are the plan administrator, and they are your recordkeeper, you can ORDER them to cease this practice and to fix it by restoring those amounts to their accounts. If you don't, you may have joined in on a breach.

There is no participant or spousal consent required to pay an RMD. See 1.411(a)-11(c)(7). Once a distribution is no longer immediately distributable (at later of NRA or 62), a plan may distribute the benefit in the form of a QJSA in the case of a benefit subject to 417, or in the normal form in other cases without consent. See 1.411)(a)-11(c)(4).

Put the money back in the plan ASAP. It's still a PT and the excise tax is 15% of the lost earnings for each year the failure continues. Submit a 5330 for the lost earnings for each year (or portion thereof) until the PT is corrected. If it's a 415 suspense account my understanding is it must be used ASAP to reduce future employer contributions for the next limitation year (and succeeding limitation years), and that it would not be allocated as earnings for 2021. Technically it's supposed to be used up before they are allowed to make any deductible contributions to the plan for the year. Good luck.

The father's IRA in effect became his inherited IRA after the sister transferred her portion out whether he likes it or not. Failure to timely disclaim timely is deemed acceptance of the property. Custodian should be providing 5498 to IRS each year in his name and TIN (typically SSN) showing the inherited IRA information. If he fails to provide a TIN, custodian would leave the TIN blank on the 5498. His failure to take his RMD is subject to the 50% excess accumulations tax starting in the year after the father's death. IRS can use the 5498 to figure this out - but often they don't. IRS would automatically waive this tax if he removes entire account balance by the end of the year containing the 5th anniversary of father's death. See 54.4972-2, A-7(b). Typically the IRA custodian cannot issue a distribution without it being requested by the owner. Probably will require custodian to escheat the funds to the state eventually (based on the criteria and timetable dictated by state law).

There's no right or wrong answer, and luckily you can punt on this question to the plan administrator. As far as advising the plan administrator which one is better, if keeping the Roth in the plan is so much better for them, why would they have put some in as pre-tax as well? Maybe they will likely be in a lower tax bracket in retirement (as is often the case) or the additional income this year could cut into their ability to make Roth IRA contributions this year, or kick them into a higher tax bracket this year. Maybe they live in a high tax state and will be moving to a low tax state when they retire. These are things in favor of distributing Roth first. (If they are already in the highest tax bracket and live in a low tax state, and already make too much for Roth IRA contributions, then maybe distribute pre-tax first, or use a pro-rata percentage of each type during the plan year). Only the participant knows their current tax situation, and even the participant will probably not know which one would be better for them in the final analysis. You or I (and probably the plan administrator) can only, at best, make an educated guess which one would be truly better for them. In my experience as a recordkeeper, FWIW, HCEs tend to complain more about current tax surprises than about tax hits that occur gradually 20 years later.

He may want to write a letter to the bank requesting that they fix the title to his inherited IRA - {Brother}, beneficiary of IRA of {father} , deceased - and to fix the 2020 5498 to reflect the corrected title and not show the amount transferred as a 2020 contribution. This way, he will have documented the problem and if IRS follows up on the 5498 reporting (that makes it look like he contributed too much to his IRA), providing a copy of this letter this can help explain what happened if it is not resolved by then. Also, needless to say, he should continue to take the RMDs required for an inherited IRA account. IRS does look at the distribution code on the 1099-R (not just the distribution amount). If the wrong distribution code is listed in box 7 of 1099-R, you can ask the issuer of the 1099-R to correct it. If they do not issue a corrected 1099-R by the time your brother files his taxes, he may want to file 5329 with his return to let IRS know the 1099-R was issued with the wrong code and that the correct code is 4 (death) so that they will not assess the 10% additional tax for premature distributions. If the bank won't do what he asks to correct the IRS filings they made erroneously, consider looking for a better IRA custodian. (He may want to wait for the CD to mature to avoid a penalty for withdrawing from the CD before then). Good luck.

If the plan document doesn't say, they can establish a procedure. Ordinarily you probably wouldn't want to give choice about which source to take it from (since getting the election out and returned, earnings calculated, and refund processed all by 3/15 may result in a time crunch issue). I know it's one person here, but who knows how many will get refunds next year. To minimize current year tax impact, you may want to consider issuing the refund from designated Roth first, then pre-tax.

It depends on the plan definition. If your plan uses elapsed time, use elapsed time service to determine 1 year of eligibility service (for the otherwise excludible employee rule). See 1.410(a)-7(c)(2) for how elapsed time works for determining a year of service with respect to eligibility to participate. (Those regs are ancient and were written when plans were allowed to use age 25 and 1-year of service, but the same principles still apply). From your description it seems this person is probably not otherwise excludible, but you have to look at the service spanning rules to see if they have less than a year of service as of each of the entry dates during the plan year. (Otherwise excludibles for an elapsed time plan would be those who you let in with less than 1 year of elapsed time service, not those with more than a year of elapsed time service who you could have determined to have less than a year using a different method of counting service).

Belgarath, You didn't specify what type of pay you are asking about here: 415 pay (which in addition to 415 limits are automatically used for certain other purposes - HCE determination, top heavy, etc), pay used to determine allocations or benefits (which must be defined in the plan document), or pay for nondiscrimination (which can be any definition that meets 414(s) as specified in the plan document). For 415 purposes, a section 125 elective contribution (which must be included in 415 pay, for example) must be an amount that would be included in income if the participant did not elect a qualified benefit under the cafeteria plan. (See 415(c)(3)(D)(ii)). Employer non-elective contributions (a/k/a "flex credits") to a cafeteria plan used to pay for qualified benefits under the plan are typically not includible in 415 pay. However, if the section 125 plan fails nondiscrimination testing, the entire value of the benefits under the cafeteria plan with the greatest value to the HCE or key employee (even if they were not actually elected by the employee) would be includible in gross income and would therefore be includible in 415 pay - and this usually includes benefits bought with employer non-elective contributions (a/k/a "flex credits") that would have been non-taxable to the employee if the cafeteria plan test passed nondiscrimination testing. If an HCE was a member of a discriminatory self-insured medical reimbursement plan that failed 105(h) testing (and was part of the cafeteria plan), the HCE's excess reimbursement under that plan would be considered a taxable benefit under the cafeteria plan (which would mean that the excess would be includible in 415 pay - even if it was attributable to employer non-elective contributions used to buy medical benefits under the cafeteria plan). If the participant was both an HCE in a failed 105(h) test, and an HCE/key employee in a failed 125 test, you wouldn't have to include the same amount in income and 415 pay twice.