C. B. Zeller

Technically, I don't think the rule is that you have to take an RMD before you can take any other distribution - I think it is that you have to take an RMD before you can do a rollover. So if the participant is just looking for a Roth distribution, I don't think there is a problem. Even if they wanted to do a rollover from their Roth 401(k) to a Roth IRA, I still think you are ok; the language in SECURE 2.0 says that 401(a)(9)(A) shall not apply to "any designated Roth account" which presumably includes rollovers from the account.

It does seem like capital is a material income-producing factor for a radio station. However "performing arts" is one of the specified fields that is automatically a service organization. I'm not sure if a radio station is in the field of performing arts. If it's primarily talk radio, as in it's broadcasting content created by its own employees, then maybe. If it's mostly playing music created by others, then probably not.

The 402(g) limit is always a calendar year limit. No need to prorate it. The 415(c) and 401(a)(17) limits may be prorated for a short plan year, although not necessarily for an initial short plan year. Check your plan document to see if it has special language about an initial short plan year.

A plan that has an ADP safe harbor match can also permit a discretionary ACP safe harbor match. You will need to read the document to see if yours does. Also see my edit to my earlier comment.

There are very limited circumstances under which a contribution may be returned to the company. Unless the $4,300 was the result of a minor typographical or arithmetic error, I wouldn't even consider it. As you suggested, the excess could (should) be allocated under the plan's allocation formula. Does the plan say that participants will have the right to direct the investment of 100% of their account? If yes, then I don't see how you could allocate amounts for those 5 participants to a pooled account. If no, then you could do it under the terms of the plan, but you still have to be aware of nondiscrimination testing. The right to direct investment is a benefit, right or feature that has to be available to a nondiscriminatory section of plan participants. If 100% of HCEs have the right to direct their investments but only 50% of NHCEs do (for example) then you might have a problem. Edit: Upon further consideration, I think there's a bigger problem, which is that only participants who have deferred in the past would have the right to direct their investments, which would be a violation of the contingent benefit rule. So I would not advise this approach. If you really want to use a pooled account, I would recommend putting everyone's profit sharing into it, not just the people who don't already have brokerage accounts set up. Does the plan allow a discretionary match in addition to the safe harbor match? If the plan was written well, it should allow a discretionary ACP safe harbor match in addition to the ADP safe harbor match. If you can allocate the excess as an ACP safe harbor match, that might be the easiest thing to do in this situation. Be aware that the plan probably has a notice requirement when a discretionary match is made.

You are correct. In order to satisfy the requirements of 1.401(a)(4)-11(g) (and 1.401(a)(26)-7(c), it's oft-ignored sibling), the amendment must pass coverage and nondiscrimination testing on its own. The way to bring in the HCE (presumably with a 0.5% accrual) under a retro amendment would be to also increase accruals for enough NHCEs to pass the ratio percentage test in the same amendment, also with 0.5% accruals for each (on top of whatever they earned in the plan under the base formula). This issue will largely go away next year when SECURE 2.0 retro amendments become available.

They can still be exempt from an audit if they increase the amount of the bond. How liquid is this investment? Will there be enough liquid assets in the plan after investing in this security to be able to pay cash distributions to terminating participants, and the owner's upcoming RMDs? The bigger issue though is fiduciary duty. Remember that the fiduciary must act solely in the interest of the participants and beneficiaries of the plan, and in the exclusive interest of providing benefits and defraying reasonable costs. And they must do so in the manner of a prudent person familiar with such matters. I would encourage this sponsor to review, with their lawyer's input, their duties under ERISA 404 and DOL reg. 2550.404a-1. If, after reviewing their duties, they still feel that it would be prudent for the plan to make this investment, then by all means proceed. Just be prepared to justify the decision to the participants (and their attorneys) if the investment goes poorly.

Yes. See the IRS rollover chart for reference: https://www.irs.gov/pub/irs-tege/rollover_chart.pdf They could also potentially do an in-plan Roth conversion instead, which would avoid the need to actually distribute any money from the plan.

For the first plan year only, the audit requirement is based on the number of participants with a balance at the end of the year.

Strictly speaking, you only get a free pass on general testing if the plan is a design-based safe harbor, meaning that the safe harbor allocation formula is required in the plan document. If the plan document says each participant is in their own group, then you do not have a safe harbor allocation formula and you need to run the general test. However, if every participant who benefits is getting the same allocation rate, then the test should pass easily on allocation rates, no cross-testing required.

There is not enough common ownership to create a controlled group. So, the question is, does there exist an affiliated service group? A, B, and C are all automatically service organizations because they are in the field of health. There is common ownership between A and C and between B and C. The questions you need to ask are: Does A regularly perform services for C (or does C regularly perform services for A)? Are A and C regularly associated in providing services to third parties? If the answer to either question is yes, then you have an affiliated service group. There are no quantitative tests to answer these, they are facts-and-circumstances determinations. If your client is unsure, they should hire a qualified ERISA attorney to provide an opinion. Even if an affiliated service group does exist, that does not necessarily mean that A's plan needs to cover the employees of C (or B), it just means that those employees need to be included in testing. If A's plan could pass testing without benefiting those employees then they do not need to be covered.

Schedule SB is used to designate a contribution for a particular year for 430 (minimum funding) purposes. There is no indication on the SB for which year a contribution is designated for 404 (deduction) purposes. There is no requirement that the 430 and 404 years be the same for any given contribution; if the timing permits, you could count a contribution towards 2023 for minimum funding but 2024 for the deduction. If the timing of the contributions was such that they couldn't be counted as a 2024 deduction (for example, if they were made before the end of the 2023 tax year), and the amount of the contributions exceeds the 404(o) deductible limit, the sponsor may want to consider making a IRC 4972(c)(7) election to avoid the excise tax. The non-deductible amount would have to be carried forward and deducted in the next tax year.

It's unlikely that any portion of the contribution could be returned to the sponsor. If the plan document says that employer contributions will be allocated pro rata, then that's what should happen. If the contribution couldn't be allocated (maybe everyone was already at their 415 limit, for example) then EPCRS says to keep the contribution in an unallocated account and use it for future employer contributions before any additional employer money may be actually paid into the plan.

Yes, it is too late to make a deferral election (including a Roth deferral election) for 2023. A deferral election has to be in place before the compensation is paid to the participant. The contribution that was made to the plan needs to be allocated according to the plan's allocation formula for employer contributions.

I agree that a plan could restrict the availability of distributions beyond the termination of employment to the later of either normal retirement age (or age 65, if earlier), or the 10th anniversary of participation. I find it unlikely that a plan restricting distributions in such a manner would allow former employees to take a hardship distribution. But I suppose it could happen.

If the employee is terminated, then they would have a currently available distribution from the plan by reason of termination of employment. Thus the hardship request would fail to satisfy the requirements of this section.

Union employees* are a mandatory disaggregation population. They must be treated as a separate plan for coverage and nondiscrimination testing, and may not be aggregated with the portion of the plan covering non-union employees. Of course, I am using the term "union employee" as shorthand for "an employee who is included in a unit of employees covered by an agreement that the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, provided that there is evidence that retirement benefits were the subject of good faith bargaining between employee representatives and the employer or employers" (from 1.410(b)-6(d)(2)). If this definition applies in your friend's case, then there would be no aggregation for testing, and no gateway needed for these people.

The 404(a)(3) limit is 25% of compensation. The top heavy minimum contribution in a DC plan is 3% of compensation. Since 3 is less than 25, I am not sure why the deduction limit would be an issue here. Can you be more clear about your question?

In general, no notice is required for a 401(k) plan termination. The notice you are asking about only applies because you are seeking a determination on the termination. The instructions for Form 5310, line 19 states Following the reference to 1.7476-1(a)(i) And on to 1.7476-2(b) 601.201(o)(3) is a very long section, but the timing rule you are looking for is in subsection (xv) Presumably, the notice has to be given to interested parties before the application is filed, so that an interested party has the opportunity to raise a complaint with IRS during the determination process if they feel that IRS ought to find against the plan.

What I am wondering is, if you look at the K-1 for "Other, LLC," who does it list as the member? Is it Joe, or is it XXXX? It's certainly possible for one LLC to be a member in another LLC. That would also explain why the income from one would affect the other. Ultimately it's all going to flow through to Joe's 1040.

This sounds like it would fall under the definition of an "overpayment" under both EPCRS and SECURE 2.0 sec. 301, so you do have some correction options. I think the easiest thing to do might be to reduce the future payments. You could also amend the plan to increase the benefit so that the actual payment becomes the correct payment. The plan could ask the participant to repay the excess. What I would probably not do, is decide not to seek recoupment of the overpayment and just let the participant keep it. While this could be an acceptable option under SECURE 2.0 sec. 301 in certain cases, there is an exception for when the participant is culpable. In your case since the participant is also the sponsor, I think there is too much risk that they could be considered culpable, even if it was just an honest mistake. There is also an exception that this is not allowed if it would cause the plan to violate 415 or 401(a)(17) - I don't know if that applies in this case. Regarding spousal consent, is the benefit being paid in a form that requires spousal consent? If it's a QJSA or QOSA then the spousal consent wouldn't be needed. If it's some other form of annuity benefit, then the correction under EPCRS is to get the spousal consent now. Withholding isn't mandatory on periodic distributions. Ideally the participant would have completed a W-4P for 0% and given it to himself (as the plan administrator). If that wasn't done before, do it now.

Is XXXX the member of Other LLC - as opposed to the individual himself? If so then it might make sense as the income from Other LLC would flow through to XXXX (and affect the K-1) but would not be earned income with regard to XXXX.

What? Are you saying that the pay credit for any given year only gets 11/12ths of the following year's interest credit, while the rest of the hypothetical account balance gets the full interest credit? I have never heard of something like this. Is this a preapproved document? If I'm understanding this correctly, I don't see any problem with your proposed amendment, just be aware since the amendment will increase the funding target, it would be restricted if the AFTAP is less than 80% or if it would cause the AFTAP to fall below 80%. I can't imagine the AFTAP would be impacted much by adding 1 month of interest credit to the funding target, but just in case.

I hesitate to disagree with Paul since you're usually right, but in this case I think I do. The instructions for the 5500 say this: The 5500 due date (and corresponding last date to file a request for extension on Form 5558) is always the last day of the month.

It is actually 4/1/2026. 2025 is the first distribution calendar year, but the required beginning date is April 1 of the following calendar year. The definition of "required beginning date" is found in 1.401(a)(9)-2 Q&A-2 (which has not yet been updated for SECURE, let alone SECURE 2, so mentally substitute age 73 below)