AJC

I discovered that my new client is the one that is continuing on as sponsor of the original plan. However, I also discovered that the last several 5500 filings show an effective date in 1994 while their plan document shows an effective date in 1986. Month and day are also different. I have confirmed where the error came from, though I have not previewed all the filings to see how far back it goes. Correcting all the previous returns (could be 30 of them) would be a mess. However, that is the correct way to handle this. Right?

Two related companies filed their MEP 401(k) plan's single 5500-SF annually over many years. The common ownership ended, and the MEP split into two separate plans effective March 31, 2024. I am trying to understand how to handle the 2024 5500-SF reporting for one of the companies - the one that became my client just recently. Was a short plan year filing due for the MEP? I do not think one was done. Can either company file a full year 5500 for 2024? What should be considered in order to make these determinations?

I feel comfortable about preparing the late filings as well as using DFVCP. One thing I am wondering about is the fact that the plan sponsor terminated the business that sponsored the plan a few years ago and started another business. I do not know whether another retirement plan was started. The client is a dentist, so the type of business remains the same. What effect, if any, does the termination of the original business - the one that sponsored the plan, have on the late filing process and the Post PPA restatement?

The owner was paid out just after the termination amendment in early 2019. And maybe that is why they have the missed filings. In any event, filing Forms 5500-SF for the remaining years appears to be the way to go.

Preparing to start a DFVCP filing for the plan years 2019 through 2023. The plan was terminated during 2019. There were twelve participants (all with balances) at the start of the 2019 Plan Year. At the end of 2019, there were two participants remaining and one of the two had an ending account balance of only $0.75. We plan to amend the 2018 Form 5500-SF for a couple of reasons. In the process, can we "not count" the participant with the $0.75 balance in the participant counts at the end of the 2011 Plan Year? Would it make any difference? Let's say we do count the participant with the $0.75 balance at the beginning of 2019, and the account custodian took the $0.75 as a fee in Jan-2020. Then there was only one participant with a balance, and that participant still has a balance today (May-2025). Can we file a Form 5500-EZ for 2019 if our inactive participant count is two on Jan-01 but only one on Dec-31? Keep in mind that we are filing under DFVCP beginning with the 2019 return. If we must file a Form 5500-SF for 2019, can we then file Form 5500-EZ for the remaining years through the plan's final return?

Are you saying all (100%) of the benefits, rights and features in the new partner's solo plan must also be available and at least as favorable in the existing partnership's plan?

A 50-employee medical clinic is owned by four doctors' individual PAs. Each doctor's PA owns 25% of a medical clinic - the partnership. The medical clinic's 401(k) plan is funded by the partnership. Three of the four partners actively participate in the medical clinic's 401(k) plan, though as the doctors are not employees of the medical clinic, their individual benefits under the 401(k) plan are funded by their PAs. The fourth partner is new and wants to sponsor a solo 401(k) with the 1099 income he receives from the partnership rather than participating in the medical clinic's 401(k) plan. In this scenario, is there anything wrong with the new doctor sponsoring a solo 401(k) rather than participating in the clinic's plan? Would it matter if two of the four partners wanted to sponsor solo plans?

As C.B. Zeller pointed out, the QDRO from the court had not yet been qualified by the Plan Administrator. I spoke to the participant today, who stated the $140,000 figure was calculated based on something other than the participant's account balance. The Plan Administrator rejected its qualification today because the Order would require the Plan to provide benefits greater than the benefits available to the participant without the QDRO. Simple as that. Both parties' lawyers were notified. An amended QRDO will be prepared and filed for the $125,000 amount that was available as of the assignment date.

I received a QDRO that was filed by the court with judge's signature. The QDRO assigns $140,000 to the alternate payee as of Sep-19-2024, adjusted for investment gains and losses through the date funds are segregated. The problem is the participant's account balance as of the assignment date was only $125,000. Can we assume the QDRO's intent was to assign 100% of the participant's account balance as of the assignment date? And there has been a single $1,500 deposit for the participant since the assignment date, which is not subject to the QDRO and will remain in the participants' account +/- any gain or loss.

So, because the annuity payments began mid-year 2024 and will total $105,000 during the second half 2024, only $105,000 of the $150,000 RMD will be offset by the annuity payments during 2024. I wonder... Is it possible that the annuity payments in 2025, up to the "required beginning date" of the RMD, could also be used to offset the 2024 RMD?

The 2024 RMD is based on the individual's accrued 401(k) account balance on December 31, 2023. The funds used to purchase the annuity this year (in 2024) came from his account under the 401(k) plan. The annuity is not owned by the 401(k) plan. I do not know whether or not the annuity was purchased into an IRA, but I think not.

The owner (plan sponsor) of a 401(k) plan is retiring. The owner turns 73 this November (2024) and his first RMD has been calculated for this year at ~ $150,000. Three months ago, the owner spent $2,850,000 from his share of the 401(k) plan assets to purchase a lifetime income annuity for himself outside the 401(k) plan. Does SECURE 2.0 Act allow the monthly payments from the lifetime income annuity that are paid to the owner during 2024 to count toward satisfying the owner's 2024 RMD from his 401(k) plan account?

Our office orders free tax forms from the IRS every year. For 2022, half of the forms 1096 we received from the IRS in our forms order have 2021 in the upper right corner instead of 2022. Is it okay to use the 2021 forms 1096 for the transmittal of the forms 1099-R?

Thanks, Lou.

A client over age 50 is self-employed. He has net Sch C income of $20,000 for 2022. No other earnings. No partners. No employees. He wants to contribute $18,587 of either pre-tax deferrals or Roth into his 401(k) plan "and" $6,500 into his Roth IRA. I think it is okay. Any issues with this?

The distribution check was written by an employee of the sponsoring employer from their DC Plan's pooled account. And the refund was redeposited into the same account upon receipt.

A client plan delivered funds based on a terminated participant's rollover request. The payment included the participant's vested balance plus a $10,000 overpayment amount (a simple clerical error - check was written for $60,000 instead of $50,000). The error was caught within 30 days. Both the participant and receiving custodian were notified of the mistake. And the receiving custodian returned the $10,000 overpayment amount to the client plan in a timely manner. Nothing has been reported yet. Does the Form 1099-R reporting for the participant distribution need to include or otherwise address the $10,000 error in any way, since the participant received what was due and the original client plan was made whole? Does the client plan need to report a plan failure?

JOH, I have read about Roth conversions over the years and believe I know "what" it is. I would like to see something that shows examples and details of the processes as well as what is and is not allowed and why. I have never helped a client with one. A self-employed 64-year-old prospect contacts me and asks, "Hey, I have an SEP and some other IRAs totaling $1,500,000 that I would like to first like to roll into a solo 401(k) plan and then convert as much as possible to Roth via an in-plan Roth conversion. I have $36,000 in basis that I want to leave in the IRAs. I also want to begin contributing the maximum amount annually in the 401(k) plan and later use a backdoor Roth. Can you help me?" Well, I would like to help him, and in the process of doing so, expand my knowledge. After reading about Roth conversions, it seems to me that converting pre-tax funds to after-tax funds - converting a traditional IRA to a Roth IRA, might be more beneficial for the prospect because of the recharacterization that is currently available for a Roth IRA conversion that is not available for an in-plan conversion. But could there be a reason why it would be more beneficial for the prospect to process an in-plan conversion, as he has asked, rather than process a Roth IRA conversion? Just another question for me. I did notice that there are a number of articles on this website (benefitslik.com) that refer to Roth IRAs, Roth 401(k)s, and Roth conversions. However, I wonder if there is current material available that covers all aspects of Roth conversions that I can rely upon to begin to build my knowledge on the subject.

I am looking for a well-written guide to in-plan Roth conversions, assuming there is such a thing available. All comments/suggestions appreciated.

Should a business owner keep fiduciary insurance policy (because of a QRP while business was active) for a few years after closing or selling their business? This could include ERISA bond coverage, employment practices liability, and a fiduciary and crime policy. Any related thoughts....

Well, I believe I found the answer. It seems the employee should pay attention to his deferrals or risk a reduced employer contribution.

A 401(k) plan operates on a fiscal year - July 1st through June 30th. The plan document defines the limitation year as the plan year for everything (except for the deferral limit). For the plan year ending June 30, 2022, an employee under the age of 50 has contributed $25,000 in 401(k) deferrals during the plan year (though never exceeding the calendar year limit). The annual additions limit is $58,000. The deferral limit is $19,500. Had the employee deferred only $19,500 during the plan year, he would receive an employer contribution of $38,500. By deferring $25,000 during the plan year, is this employee limited to $33,000 of employer contributions for the plan year ending June 30, 2022?

I worked with a another plan sponsor 2 years ago who had a different operational failure requiring mid-year termination and VCP filing. This time around, I was just wondering what some other service providers were doing in a similar situation regarding the timing of the termination notice. We did provide a termination notice of less than 30 days for the other client in 2019, which was included in the VCP filing, and the client received an IRS compliance statement. We are providing a termination notice for this current client of less than 30 days as well, as it appears to us that immediate cessation of the SIMPLE contributions is called for.

A SIMPLE-IRA plan was adopted by an employer that already had a 401(k) plan, and both plans operated side by side for a number of years. The employer has been notified of the operational failure and agrees to stop contributions to the SIMPLE-IRA plan immediately and terminate the plan. Is a plan termination notice required before stopping contributions?

A 50+ year old single owner-employee has an existing SEP, which he maxes out each year. He is asking whether he could adopt a 401(k) plan and contribute only the catch up amount in addition to continuing his SEP contributions. He has plenty of income to cover it. So for 2021, he would like to max out his SEP at $58,000 plus contribute $6,500 in salary deferrals into a new 401(k) plan. He has no reporting requirements with the SEP, and he would be exempt from filing a 5500-EZ until either his 401(k) plan reaches $250,000 or he terminates it. Thus, his only current additional cost is the 401(k) plan document. Any problematic issues with any of this?