Tom

Oh the 5-year clock - Thank you for that!

A client defers $23,500 as Roth in 2025 and will have an employer contribution of $46,500 ($10,500 SH nonelective and $36,000 PS.) Can he elect Roth on a portion of his employer contribution or does it have to be the entire money source for that year? Example - he might want to have $20,000 of his employer made as Roth. Seems that should be possible with an election form. I realize the Roth conversion option may be a better and simpler option. Thank you, Tom

I want to be 100% for this particular client who loves Roth. I realize the plan could allow for Roth conversion as an option. But he may prefer to fund his employer contribution as Roth. I know it accomplishes the same thing but that might feel better to him. He is a sole proprietor and maximizes deferral and employer at 415. So I assume he could elect Roth for his safe harbor nonelective and profit sharing. I know it will be troublesome to have to allow this option for his few employees also. The plan is not on a record keeping platform so we don't have to worry about any limitation there. The plan already provides for employee Roth but not the employer Roth of course since that is SECURE 2.0. Sound ok? Thanks Tom

I see this code applies to 414(m) which relates to affiliated service groups. So 3H must be used for an ASG. It's just odd that the instructions description mention "controlled group" but not ASG by name. So 3H applies for an ASG. No need to comment unless someone thinks I'm wrong. Thanks

What is everyone doing for SECURE 2.0? I realize the amendment is not yet due and we are tracking the very few optional provisions elected by clients. I don't believe I've seen an interim amendment from FIS other than for a terminating plan. We've notified clients of the LTPT rule for 2024 and then again for the 2025 change. I'd like to get a SMM out with that, along with the higher cash-out limit. Thank you Tom

Thanks Paul. You confirmed an enhanced safe harbor match cannot be based on deferrals over 6% (so as to satisfy ACP safe harbor) and the matching rate can be over 100% but not increase on higher deferral tiers. This will give them something to think about. Not sure how practical a higher match rate is but they may cosnider since they want to encourage employee participation and aren't keen on across-the-board profit sharing.

fmsinc - David thank you it was a TSP. Tom

We've never had a client enhance the basic safe harbor match beyond 100% of deferrals up to 4%. We now have a client who prefers to enhance the safe harbor match beyond that instead of adding a discretionary match. It seems that the rules say deferrals over 6% cannot be matched under any safe harbor match option (and get a pass on ACP). Is that right? I think they will want something like 100% up to 3% plus 50% on the next 3%. The maximum match likely could be 100% up to 6% as an option I believe. I understand the rules for enhanced are that it must be at least as generous as the basic safe harbor match and the rate cannot increase with an increase in deferrals if it's a tiered match. Thank you, Tom

What would happen to someone's funds who passes away, has no spouse nor children and no other designated beneficiary? We assume the plan (not our plan) and state laws of Indiana would say the account goes into the estate. It is $1.5 mil. She does have 2 brothers (one is our 1040 client.) We believe a court will decide the brothers will get the money. And if so, the question then becomes, can they roll to an IRA? Doubtful. If they can when would it have to be distributed? The decedent was not RMD age. We don't know the terms of the decendent's plan. She worked for the VA and so it is a govt plan. Any comments are appreciated. We are not offering our 1040 client any specific advise. This is mostly just for our general education. Of course the main lesson is - have a designated beneficiary and a will.

Just another I believe you are right about that. you jogged my memory.

I know much has likely been said about this already. We have a new client plan that uses the part-time exclusion (those scheduled to work <1000 hours). But are those who worked 500+ for 2 consecutive years still eligible to defer? Or does the PT exclusion trump the LTPT rules? Thank you, Tom

A physician group merged some years ago and because they worked with different investment advisors, the plan investment options provided for individual brokerage accounts (since accounts from other plans merged in) along with a major 401(k) record keeping product. As years passed, and the group became very large the decision was made to require all accounts to be under one record keeping umbrella. This was to facilitate one payroll file feed to the record keeper, elimination of lots of separate payments to brokage accounts, reconciling all these accounts vs. consolidated reporting, etc. This record keeper provides for a Schwab brokerage account option so almost all brokerage accounts (all existing Schwab) were able to transfer in kind very smoothly. However, there is one brokerage account with a brokerage firm that cannot transfer in-kind to a Schwab account as this brokerage firm be a paid advisor on an account that is not custodied with them. Instead the account would need to be liquidated and wired to Schwab. The physician involved is balking perhaps with the backing of the advisor. The comment was made regarding potential losses on some interest bearing securities that come due in the next year or two. We are wondering what options the Trustees of the plan (a group of the owners) have. I believe investment options/features are not a protected benefit under 411(d). I suppose they could accommodate this one remaining account in some way - move all funds but those interest bearing securities until they mature. Or as Trustees, they could force the account to be liquidated and transferred. They would not want to run afoul of any potential fiduciary issues. Primarily I want to confirm that investment options under a plan such as wide-open-use-any-custodian-you-want brokerage account option is not a protected benefit. Thank you Tom

Client already has automatic contribution arrangement ACA - not any safe harbor version. The plan has no employer contribution (and is not top-heavy.) The plan has many high paid employees and failed ADP testing. They want to consider increasing the ACA from 3% to 6%. I assume they can do thi at any point in the year? I believe this can/should only apply to newly eligible employees as current eligible employees either were set at 3% ACA or elected something different. EVen if they are able to increase the 3% defaulted employees to 6% I don't think they'd want to do that. Thank you, Tom

Client has basic safe harbor match. They want to provide more match. I will recommend the discretionary match that doe snot match deferrals over 6% nor exceeds 4%. they can choose the parameters. The plan is top heavy. We don't run into this situation often but I believe the above still satisfies the top-heavy exemption since it all stays within the parameters of the safe harbor rules. Thank you, Tom

So even the ACP must be done by March 15 - that's is what I always believed but if it isn't funded - well not much can be done. We tell non-safe harbor clients to get their data in fast. And if they don't then that's that.

Thanks

We have a client who failed ACP test. The one HCE is entitled to the match but then must receive the correction. Issue is the match has not yet been funded and the correction is to be made by March 15. This is his first year int he plan so he has no other match source funds. I should know this but I'm thinking the ADP correction is due March 15 but an ACP correction is not dye until the end of the following plan year. We know about the vesting rule - refund the vested portion only and forfeit the unvested amount. Thank you

Thanks all. We can reduce the PS for 2023 and apply to 2024 since it was paid in 2024 and will amend the 5500 for 2023. The large remaining "overpayment" of their PS (what they got v. what mgt now thinks they should have gotten) will be "paid back" by reduced PS for 2025 and their DB will be frozen for 2025 which was suggested by the actuary. There's a chance the shareholder physicians might let the past be the past and move on. These non-shareholders doctors are created wealth for the others and I think that should be recognized and give them good PS. But we'll see if that flies. You all slammed the door on the claw back which I appreciate. I didn't feel comfortable about that for various reasons and that would have been an HR nightmare to take money away from doctors! Thank you

We have a client who over-funded profit sharing for 2022 and 2023. The "over-funding" is not relating to testing or 415 limits. The TPA calculations provided a uniform profit sharing rate for all HCEs. The plan was funded accordingly. In providing the funding summary for 2024, the new CFO reviewed and indicated certain HCEs (non-owners) were not to receive PS at the same rate as owners and raised the question of prior years. The 2024 year can be fixed of course since not yet funded but 2022 and 2023 are an issue. One alternative is to short them going forward to make up for this but it is a large amount and will take several years. Another alternative would be to remove the excess from their accounts. Reduction of PS for 2022 and 2023 would not be an issue since they are HCEs and they are getting the top heavy. The 5500s would have to be amended as well as the corporate tax return. Comments about prior year "claw-back"? Thankyou

A client funds the basic safe harbor match. The plan is top heavy. If they want to provide PS to select employees who are not key and not HCEs, would that trigger the top heavy 3% for those non-key who are not receiving the safe harbor match? Seems it would. But seems an unintended top heavy consequence. Thank you, Tom

I saw a communication from a record keeper which provided a discretionary match participant notice template. It seems to imply that a notice is required when any discretionary match has been funded. My understanding has been that this notice, due 60 days following the final funding of the match for a plan year, is only needed if the match was a "flexible" discretionary match and that this notice is not needed for a "rigid" discretionary match. Did I miss a change in the notification requirement? Thank you, Tom

Bri yes I would think so. They are nowhere near 415 limits for anyone - deferral and small match plan only.

We have a not-for profit client who did not direct that a match be calculated and funded for 2023 due to key personnel changes. Now they realize this and they want to fund a 2023 match. The match is fully discretionary. We are advising against this since it will go to some former employees who left in 2024. If they insist, we can calculate on 2023 census and file an amendment 5500 for 2023. WE are instead encouraging them to fund a more generous match for 2024. I guess my questions is - how far in the future can you fund a prior year when you aren't concerned about the tax deduction deadline? Thank you, Tom

We learned that a CPA was deducting a sole proprietor's deferrals on his 1040 for some years when we were record keeping it as Roth as the client intended. We will see if the client wants to amend 3 years but obviously the plan recordkeeping must be fixed since this information has come to light. It goes back a number of years further than the 3-year amendment period. It is a brokerage account not a recordkeeping platform so we reclassify in our admin system. The client seems to be blaming us and is saying how he lost all this Roth opportunity. Our questions - did you look at the reports we provide you each year? Did you ever mention Roth to your CPA? The CPA just stuck the 415 max on his 1040. I will recommend Roth conversion for a couple years which will reinstate him back to where he wants to be for the most part. And I will recommend adding a DB plan to offset the income. He's a perfect candidate. He mid 50's, makes $900,000+ and just has 4 younger eligible employees. He's complaining about lost opportunity because he's says he's in 41% tax bracket now and when retired will be 20%. He's got this backward! I estimate that in 15 years his RMD might be $100,000 so if he pays 20% in retirement but saves 41% now - what is the problem. My approach will be - the tax deduction for years has saved you tremendous amount of taxes. And when distributed you will pay tax at a much lower rate than what you saved up front. I know some will say - what about tax-free earnings on Roth. I did an analysis years ago which showed that if the tax rate is the same front end and back end and if tax savings are invested and earn the same rate as the plan, there is no difference between Roth and Regular in total payouts over retirement years. I know it will be tough to get the client to understand this. There was a good article by Larry Starr in the early Roth years. I will try to find that. He made good points as to why Roth isn't all its cracked up to be. Does anyone know of any good published piece questioning the value of Roth for some. I realize for some it is a good option - low income, those starting out in careers. And I realize funding as Roth most often results in better retirement readiness because most don't save and invest the tax savings when funding as regular. Thank you for any comments. Tom

A client mentioned they were considering including the new 60-63 catch-up provision. I was under the assumption that if a plan included the regular catch-up provision the new higher amount was automatically available. Is it even possible to have a plan that allows for regular catch-up deferrals but not the new 60-53 catch-up amount? Will this be in an amendment or is it just effective via IRS regulation automatically? Thank you, Tom