Larry Starr

You just don't get it. There is no chance you are right; there is a 100% chance you are wrong and those of us who understand it know that to be the truth. However, I'm never going to get you to understand string theory, or plan loan math, so I'll respectively give up. I absolutely did explain why the person's taxable income is $20,100 (they were paid $20k in W-2 and their retirement plan investment earned $100 which was also paid to them; is that really so hard to grasp?). You continue to compare apples and oranges; work through my examples with an open mind; maybe the light bulb will go off, but probably not.

Agreed. In the "old days", I always said a home equity loan is a better deal because you can deduct the interest. In the new tax law environment, I have decided not to get into that discussion because of all the caveats that I would have to note, and I'm talking to the business owner who is going to pass this along to the participant, so I'm not going to try to get the nuances of interest deduction across as well.

You are SO CONFUSED. I don't know that I can get you to see what is true. You are confusing many different things. You are comparing apples to succotash. I'm going to try to respond within your posting, but I am not hopeful the light bulb will go off in your head as to why you are wrong.

Luke, as I said, I believe "they" will fix this; I don't know how. It could be informal guidance that they will not enforce the rule in this circumstance, or something else. I just have a belief that they didn't consider this issue and that it is an obvious oversight. Maybe I'm right and maybe not. As I noted, this is just an informed opinion, but no guarantee.

Interesting; I've looked at many of these documents (since I am famous for "there's no such thing as a solo 401(k)") and can't recall ever seeing one that didn't work (that is, never saw one that excludes anyone who would otherwise qualify). Certainly possible, and clearly stupid, but exactly what you would expect from fund companies who are ok with "brain surgery, self taught".

Give that man a cigar! AMEN!

ESOP Guy and CuseFan are both wrong; THERE IS NO DOUBLE TAXATION; that is to say, there is NO difference between a bank loan and a plan loan from the standpoint of the participant and his taxation. They are NOT inherently better off paying the interest to themselves (actually, never themselves; to the plan) than the bank. Borrow from the bank; pay back your loan and interest (assume interest is not deductible). Borrow from the plan, pay back your loan and interest (assume interest is not deductible). So far, the same. In the plan, look at two scenarios: 1) No loan ever taken. When he is paid out, he pays taxes on his account. 2) Loan taken. When he is paid out, he pays taxes on his account. No difference. No double taxation. The funds that he borrowed would have earned a rate of return in the plan if it had not been removed and placed with a "note receivable", which is still a plan investment just like any stock or bond. If the earnings on the note receivable exactly equal the earnings that would have been earned on the stocks/bonds that were replaced, then his account is exactly the same when distributed and the taxation is identical. The difference has to do ONLY with the earnings on the account and the earnings on the loan. And if the account did better than the loan (this year, the S&P 500 index is over 21% as of today; a loan is probably 6 - 7%), then having the loan produces a NET LOSS to the participant in his retirement benefits. The other possible difference is the loan rate between the plan and the bank, but no matter what it is, THERE IS NO DOUBLE TAXATION. The recurring error of so many people on their understanding of how this works mystifies me. It reminds me of the Monte Hall problem (Google it if you don't know what I'm talking about). The only answer that is correct is ALWAYS take the deal. It raises you odds from 1/3 to 1/2!

With the additional info, you now have your answer. You plan DID include them, you (client) just didn't administer the plan correctly. Reallocation of the existing contribution for 2018 is probably the easiest thing you can do. What is your role in this? Did you set up the plan? Do the documents? Administer it?

Yes, but as noted previously, why aren't you just sending them a check from the plan and not involving PenChecks?

What you need to do is fill out the appropriate form with your current IRA custodian, electing a direct transfer to a qualified plan and give them all the appropriate/requested info. That will (almost!) guarantee that the reporting is correctly handled. DON'T try to explain to them the WHY of this transaction; they don't care, and there is always a chance that such additional involvement will only screw it all up for you.

Stick around here long enough and you will find that I have very different perspectives on most things pension related! Your comment about your history on this issue is exactly what I would have expected; that's what makes my practice different than most others. Frankly, we understand the details of the rules that apply to our business and my job is to protect my clients, not save five minutes administratively (I am also a notary and will happily notarize any J&S forms for clients if they want, but fully legally - they have to show up in my office with ID). All those people who think annuities are a problem just don't know what the true situation is; it really is trivial once you are set up to handle it. Investment of a couple of hours is all it should take, and yes, almost all the software systems will prepare the forms. We use a separate legal document preparation system to prepare our distribution forms packages as we customize it so that we input the specifics and get the correct matching forms (like, over/under $5,000, with or without J&S (we have a couple only), age 70 1/2 issues for owners, etc.

Question 1: No. Question 2: $160,000. Comment: even if there was NO bond and you reported it correctly, the DOL would come back and say you have to get a bond and then you get it and they go away. There is (almost) never any real penalties associated with bond issues so long as you have the right bond amount at some point.

I have a different take; a client who ignores our requests (especially REPEATED requests), gets fired.

We certainly don't have enough info to figure out what's going on, but if you are correct that money was removed from your account that should not have been removed, call the local office of the Department of Labor and tell them your story. They will almost definitely follow up on your behalf.

It is absolutely NOT correct. Do yourself a favor. On a piece of paper map out what would happen with a plan loan vs a bank loan and see how the participant ends up exactly the same in both cases. No double taxation.

Do you really mean "statutory employees" which are a very specific category (like, life insurance agents or bread route salesmen)? And I am at a loss to understand what you mean by "solo K" that excludes non-owners; WHAT? Be a little (no, A LOT) more specific about what is going on here and we might be able to give a better answer.

We will assume that they are correct about the over payment and you understand that you WERE overpaid. Therefore, you are in possession of money that belongs to other people and, yes, it should be returned. There should be no tax issue since you rolled it over and you can return it by rolling it back to the plan which is a non-taxable event. You do not need to explain why you are rolling it back and I would suggest you don't try to explain since the IRS custodian is likely only to screw it up. And yes, if this was my client, we would take you to small claims court. It is no different than if your bank deposited someone else's check into your account. It isn't your money, and just about any court is going to make you return it; there is no justification for your "undeserved enrichment". It doesn't matter what you "feel" about your obligation; the court will see it differently and you should just comply.

You need to provide us much more information. It is always preferable to give us the specific details of the specific situation along with the specific plan provisions that you do have. So, do you have a participant with two outstanding loans? What are the specifics of each loan? What does the plan say with regard to loan limitations (how many loans at one time, etc.)? I doubt you an do what is being suggested. However, if the plan allows and if the numbers work, one possibility it to take a new loan that pays off the two existing loans (this assumes you don't exceed any loan limitation, but you didn't give us the necessary info to know if that is possible). I'm going to leave it at that until you provide the gory details as requested above. And for everyone else who lurks out there.... ALWAYS ALWAYS ALWAYS give us ALL the details; our business is completely fact specific, and without all the facts on a situation, we are just wasting our time trying to cover every possibility of what MIGHT be the question.

I've looked at it; in my view it's nothing but a gimmick and there's no reason for it in our practice.

Not at all! We automatically print out the necessary forms and notices that go with the distribution forms for when someone gets paid out. It's all automated and actually trivial from an operations standpoint.

Pretty much what I expected. Ignore everything else you get from them. You will be fine. Sleep well!

ALL of my plans have the J&S as the automatic form of distribution, but everyone waives it to get the lump sum distribution (except for 2 annuity purchases in over 35 years of doing this with thousands of distributions). It's no big deal that he has that provision. HOWEVER, the reason I do this is because if you don't, the spouse is the required beneficiary for 100% of the death benefit (instead of 50%). What's wrong with that? It disinherits the children of a prior marriage. Had a take over client in today with a prototype 401(k) document that used the lump sun only, and it turns out it is his second marriage and he has children from the first and he was PO'd that no one ever discussed this with him! Just, FWIW.

Kevin C's answer is correct. Bottom line: don't sweat it. If you wish, you can answer them now telling them you don't have the money, you paid taxes on it, and you are not going to be returning anything to the plan. Not really your problem (this assumes it really was from your account). You say you already told Prudential and explained it was not rolled over; did you hear from them again after that?

Yes; soon (in geological terms).