bito'money

Luke, I believe that the answer is no, it wouldn't matter. 1.408-8 A-5(a) says the following with regard to an election by a spouse to treat the IRA as his or her own: "If the surviving spouse makes the election, the required minimum distribution for the calendar year of the election and each subsequent calendar year is determined under section 401(a)(9)(A) with the spouse as IRA owner and not section 401(a)(9)(B) with the surviving spouse as the deceased IRA owner's beneficiary. " So, if she made the election to treat her deceased husband's IRA as her own IRA in either 2021 or 2022, and then transferred the balance in that IRA into another one of her own IRAs the year-end balance for what was then her husband's IRA as of 12/31/2021 would be included with the rest of her year-end 2021 balances in determining her 2022 RMDs for her own IRAs.

Luke, since Dobber said it was a transfer (not a rollover), is it not possible that she elected to treat the deceased husband's IRA as her own first and then did a transfer from one of her IRA accounts to another? (I think the benefits of doing that would be that she can use her age in the Uniform Lifetime Table to determine that RMD instead of the single life expectancy factor applicable to inherited IRAs in case of death after required beginning date). If she did that, I think she would just increase her old 12/31/21 IRA balance by the amount of the transfer based on 1.401(a)(9)-7, A-2 in determining her 2022 RMD. Of course, the IRA custodian would have to characterize the transaction this way.

There's also an exclusion from having to sell employer securities under 31.3405(c)-1 to satisfy 20% withholding... Q-11: Are there special rules for applying the 20-percent withholding requirement to employer securities and a plan loan offset amount distributed in an eligible rollover distribution? A-11: Yes. The maximum amount to be withheld on any designated distribution (including any eligible rollover distribution) under section 3405(c) must not exceed the sum of the cash and the fair market value of property (excluding employer securities) received in the distribution. The amount of the sum is determined without regard to whether any portion of the cash or property is a designated distribution or an eligible rollover distribution. For purposes of this rule, any plan loan offset amount, as defined in § 1.402(c)-2, Q&A-9 of this chapter, is treated in the same manner as employer securities. Thus, although employer securities and plan loan offset amounts must be included in the amount that is multiplied by 20-percent, the total amount required to be withheld for an eligible rollover distribution is limited to the sum of the cash and the fair market value of property received by the distributee, excluding any amount of the distribution that is a plan loan offset amount or that is distributed in the form of employer securities. For example, if the only portion of an eligible rollover distribution that is not paid in a direct rollover consists of employer securities or a plan loan offset amount, withholding is not required. In addition, if a distribution consists solely of employer securities and cash (not in excess of $200) in lieu of fractional shares, no amount is required to be withheld as income tax from the distribution under section 3405 (including section 3405(c) and this section). For purposes of section 3405 and this section, employer securities means securities of the employer corporation within the meaning of section 402(e)(4)(E)(ii).

fiddle - Lines 5a and 5b. It is part of AGI on your return. It is just excluded from modified AGI for purposes of determining your Roth contribution limit (see publication 590-A - worksheet 2.1).

Hi BenefitsBum, I am experiencing the same problem as you with the numbers changing to 10 times the original amount input, and the totals not footing. Did you ever get the issue resolved with pay.gov? I called and they said they would call me back but they never did (and that was over a week ago). Did you ever find out a trick to getting it to work right?

Assuming it's a DB plan, another possibility is referring him to check the PBGC missing participants program if company A (or company B) terminated that pension plan at some point. In some cases if they couldn't him or her when the plan terminated, they may have sent his benefit to PBGC. https://www.pbgc.gov/wr/tips-for-finding-a-lost-pension-benefit

If you meet the 401(m), 410(b) and 1.401(a)(4)-4 tests (BRF test for rates of match) for those years, looks like you can correct by SCP based on 4.05(2)(a). Though there is a rule about the nondiscriminatory timing of plan amendments under 1.401(a)(4)-5, I don't think removing a previous exclusion of HCEs is necessarily discrimination in favor of HCEs (it's really just removing discrimination in favor of NHCEs) - except perhaps if there was something else discriminatory about that particular timing .

Jakyasar, there's a lot you are not saying here. You are not saying what the rules are for allocation of a profit sharing contribution under the plan. Is it fixed or discretionary? What have you told participants about this year's profit sharing allocation (if anything)? Is the plan top heavy? Has the profit sharing plan been around for at least 5 years? Assuming around at least 5 years and not top heavy.... If your profit sharing plan provides for a discretionary allocation for 2021, why not just tell the sponsor to terminate profit sharing plan now (effective retroactively) without allocating discretionary contribution for 2021, and then start a new 401(k)/profit sharing plan next year? Admittedly, there is probably an issue with terminating effective retroactively, but if you treat the earlier distributions as advanced payments, I don't see what the harm would be. If your profit sharing plan provides for an allocation that is fixed not discretionary for 2021 and some participants already have earned it (so that it can't be cancelled without violating the anti-cutback rule), freeze the plan allocations and resolve to terminate the plan and distribute all assets, allocate the final contributions. Then treat the amounts previously distributed in error as advance payments, and issue residual checks for everyone with a balance after the 2021 allocation is done. Then start a new 401(k)/profit sharing plan next year. Regardless of the situation, you may want to submit a VCP to make sure IRS is on board with allowing you to distribute the plan assets in-service before the plan termination was formally adopted (and treating those distributions as advance payments as a remedy).

Luke, if you perform a diligent search and are unable to determine the beneficiary of a decedent by the time you file the Form MP you would list the benefit under the deceased participant's information. (For example, let's say you find out the participant died years ago when processing the plan termination, you have no beneficiary designation form on file, and you either can't determine who the participant's survivors were based on the default beneficiary hierarchy in the plan document, or you can't find an individual administering his estate if the benefit is payable to the participant's estate), The preamble to the 2017 PBGC missing participant regulations under section 4050 stated the following: "PBGC expects that there will be instances where a DC plan knows a participant is deceased but has little or no information about a beneficiary. Where an unknown beneficiary of a deceased participant is missing, as defined in the final regulation, the account balance of the deceased participant may be transferred into the missing participants program. PBGC will take into account the fact that there is no known person to search for in evaluating the plan’s fulfillment of the diligent search requirement for any such distributee. Plan fiduciaries and QTAs would file in accordance with the forms and instructions for DC plans what information they have about the participant and beneficiary."

Here's another idea: send the money payable to the estate to the PBGC and let the PBGC deal with it......https://www.pbgc.gov/sites/default/files/form-mp200-instructions.pdf

Not a bad idea BG5150, but I was hoping to hear from fellow benefits nerds with 401k plan admin experience rather than payroll nerds without admin experience. 😀

I have 3 questions about Workday all as it relates to monitoring the DC Plan 415(c) Annual Addition limit ($58,000 in 2021.) Please confirm Workday can actually monitor the 415(c) Annual Addition limit. Can Workday calculate DC Plan contributions sequentially: for example, determine non-elective contributions first before payroll deductions/matching contributions. Can Workday also calculate DC Plan contributions concurrently: for example, Basic Pre-Tax, Basic Roth, and Matching Contributions can be calculated concurrently up to the Annual Addition limit. Sequential deductions may lead to Basic Pre-Tax Deductions up to the annual addition limit with no room for matching contributions.

Austin, See end of page 4 through beginning of page 5 in the following for IRS suggested correction method: https://www.irs.gov/pub/irs-pdf/f14568d.pdf Looks like if you refund employer contributions by the due date for the tax return you can avoid the 10% penalty under 4972.

If you are offering a payment amount greater than the RMD, include the 402(f). The SECURE Act raised the penalty to $100 per participant for not providing the elective withholding notice so don't forget to include that also for the RMD piece.

Another possible problem: "children or parents" seems to indicate that that is a single class in which survivors would share equally. So, if a participant was survived by 3 children and 1 parent, each would get 1/4. I suspect they probably meant to say: surviving spouse, surviving children, surviving parents, then estate (so that each of the 3 surviving kids would get 1/3 and the parent would get nothing in that example).

Carol, Perhaps you could consider amending the plan (and/or the employee payroll deduction/deferral election forms or the electronic on-screen equivalents) to say that deferrals shall be limited to amounts available after withholding from an employee's pay (for employment taxes, other benefits, etc) so that your plan document matches your informal payroll practice in this regard. The only guidance I know of that touches upon this is the catch-up regulation under 1.414(v)-1(e)(1)(ii)(B) that says for purposes of meeting the universal availability requirements for catch-ups, an applicable employer plan does not fail to make catch-ups universally available merely because it restricts deferrals of any employee (including a catch up eligible participant) to amounts available after withholding from the employee's pay (e.g., after deduction of all applicable income and withholding taxes). While the context of these regulations is limited to the universal availability of catch-ups, this makes it seem that the IRS is aware of this issue and allows you to limit contributions that would have been made under an election where implementing the election is impractical due to legal restrictions or otherwise wouldn't make sense. Best of luck.

Thanks Effen. Yes, Mike Preston, 5-year cliff. In case I wasn't clear, they are vested as of 4/1 after the year they attain 70 1/2, but just haven't hit their NRD yet. In case you think it's relevant, the plan in question offers vested participants in-service commencement as of 4/1 after the end of the year they age 70 1/2 in an unreduced amount, but does not require non-5% owners to commence as of that date. This participant elected not to start in-service.

Would like to hear opinions on the following question: Plan's eligibility provision requires one year of service, vesting is 5-year cliff and Plan's normal retirement age is later of age 65 or the fifth anniversary of plan participation. NRD is the first of the month on or after NRA. Participant is hired at age 65, hits the one year of participation requirement at 66 (in the following year). He attains 5 years of vesting service in the year he hits age 70 so he became fully vested a few months before he hit his NRD (since he won't hit 5 years of participation until the beginning of the next plan year when he hits age 71). He then continues to work beyond NRD - working full time until he retires at a late retirement date, age 73. (Plan provides for suspension of benefits in cases of delayed retirement, but this may not be relevant here since the participant's NRD falls later than 4/1 after the end of the calendar year he attains 70 1/2). When the participant eventually terminates (at age 73), is the actuarial increase starting date: (a) 4/1 after the end of the calendar year he attained age 70 1/2? or (b) NRD (i.e., the first day of the plan year in which the fifth anniversary of his participation occurred)?

JulesInCNY, the AP is required to start taking RMDs in the year the Participant hit his required beginning date (so the RBD for the AP is based on the participant's age, employment status, and 5% ownership status, not the AP's info). As far as your 4/1 question, the participant hit his RBD in the year before the QDRO split occurred, so the AP would have to take her RMDs by 12/31 of each year (i.e., no 4/1 delay since the participant's RBD occurred in an earlier year). So, if AP received a portion of his account balance in 2017, AP should have received RMDs by 12/31/2018 and 12/31/2019 already. If you know the participant is still alive, the AP's RMD is determined by dividing the AP's prior year separate account balance by the Participant's uniform lifetime table factor based on his age in the year of distribution (rather than the AP's uniform lifetime table factor using her age in the year of distribution). If you know the participant died after RBD, then the AP's RMD would be determined as if she was a surviving beneficiary of the Participant - that is, by dividing her prior year separate account balance by longer of the remaining single life expectancy of the participant (determined based on age in year of death and reduced by 1 each year since the year of death) or the single life expectancy of the AP (determined based on AP's age in current year). Hope this helps.

In a 2012 IRS phone forum presentation, the IRS reps said the correction for this situation was exactly what you proposed - stop all contributions (both deferrals and after tax) to the plan not later than the VCP submission date, and keep existing assets in the plan until a 401(a) distributable event occurs (death, disability, or termination of employment). Under RP 2008-50 (which was in effect at that time), Appendix F, Schedule 6 was the form used for this - not sure what about what new form number (14568-?) is equivalent now. Admittedly not as nice as converting it to a 457b.

Appendix B, section 3.01(d).

The IRS is telling you to use the same rule as for that type of fix.

What do your plan terms say regarding definition of comp? Does it just count pay from the company that sponsors the plan, so that the other company is a non-participating employer in your plan? Also, unless the plan provides that safe harbor contributions can be made to the other plan I can't think of any rationale for contributing the full amount to the other plan. 401(a)(17) says that a plan cannot base allocations on compensation in excess of the compensation limit. If you are not doing that, then it may be ok to take all the owner's pay from your plan's sponsor into account. For example, if he receives $150k in comp from company A and $150k from company B, you could conceivably have him get $4500 in each plan.

BG5150, You need to look at 2.02(2)(a)(iii)© in APPENDIX B. Have fun.