FPGuy

The potential for a 1099 in the amount of the RMD from both the QP and IRA is concerning. If the RMD and rollover (and by rollover I assume we are talking about a trustee-to-trustee/custodian transfer) were both in respect of this year, could you transfer the money back into the QP and get a re-do?

I think it more likely than not that the annuities in question are similar to the TIAA annuities commonly found in 403(b) plans. Several insurance company recordkeepers developed these for use in 401(k) plans on their platform. There may be little to no cost to cashing them in. And keeping them may present a problem, as well incurring additional administrative expenses for maintaining them, if you change recordkeepers. I would encourage you to contact the annuity issuer and/or bring in an insurance professional familiar with the product.

Agree that crediting and funding are distinct and FICA tax considerations are not dependent on the latter. But if NQ document stipulated a vested crediting schedule, and for the years in question the amounts were not properly credited, then FICA was under-reported in those years. This is what I expect was the case. Question as to remedial remedy for closed years: how is "that portion," and the earnings thereon, recovered? Pro-rata in some fashion from each NQ distribution? First out? What if distribution in the form of a life annuity - using the annuity exclusion rules for basis recovery?

He can certainly assign the income to the S-Corp as Bird suggests but a) Why - what is purpose for S-Corp. vs. reporting income on Sched. C?; and b) for Plan contribution purposes would need a W-2 from the S-Corp. Seems to be that for 2018 his best results would be to file a Sched. C and adopt a SEP per jpod's suggestion.

Very interesting discussion of a grey issue, but as to the specifics, notices were sent out to plans that filed a 5500 and had a connection to BNY. In many cases this would be that the plan was on a Pershing platform in whole or part, Pershing being a division of BNY. As noted, issue involved overcharges in respect of ADRs, a list of which can be found on the referenced website bnymadrerisasettlement.com. These are all individual securities. The settlement does not involve ADRs held within mutual funds, ETFs or collective funds. Also, a small correction to the facts stipulated in the initiating question: doing nothing (i.e. not responding) precludes the plan from receiving a settlement, but does not prevent the plan from being bound by the settlement terms. In other words, if the plan wishes to pursue a separate action, do it now or be bound by the settlement terms.

In addition to Millenium, the other big player in the missing participant biz is PenChecks. We have used them on forceouts of less than $1K as well as up to $5K; for distributions to non-locatable or responsive participants when a plan was terminated; and to handle returned distribution checks. I know that at least in most cases fees were assessed against the participant's account, but as we usually try to minimize contractual intermediation for this service, not sure if any other fee arrangements were made between the parties.

I have several sole-proprietor clients with "SoloK" plans, including my wife and myself. With one exception (my own plan) we use recordkeeper prototypes. My experience is that some recordkeepers will not process a plan adoption agreement without an EIN whereas others will.

The use of the term "vesting" is confusing. After 3 years individuals are entitled to received restricted stock (not stock units) according to some formula. Since there is nothing in the description suggesting that the stock is subject to a substantial risk of forfeiture, it should be taxable upon receipt. That obviates any concern with either 83 or 409A. Unless one could argue that 65% of the stock Is fully vested on delivery and 35% (if that is proper discount - beyond my pay grade) is subject to substantial risk of forfeiture and therefor Sec. 83. But I don't see how 409A would apply under any analysis and therefore don't see any issue with the company having limited discretion over redemption terms.

Some years ago we managed the 401(k) for a successful private business. The owner was a big fan of transparency and published his own investment allocation, which was heavy with tech funds. Naturally, employees followed his lead. When the Dot-Com crash hit, the Plan assets went from $15 MM to $3 MM. Not a morale builder. I suggest that having a quirky single stock investment option is the same kind of accident waiting to happen. Unless the Plan has a uniquely sophisticated population, it's inclusion in the menu is a tacit recommendation that is all too likely to be followed.

I'm a financial guy and will leave the question of loan rate to the ERISA pros. But let me weigh in on the relative financial merits of Plan vs. commercial loans, and maybe dispel some common myths about the former. Smith needs a $10K loan. She can take it from her 401(k) or the bank. In either case the interest rate will be 6% and the loan will be amortized in 260 level weekly repayments. The base case is that her Plan investments are expected to grow at 6% as well. If she borrows from the bank her $10K in the Plan will grow to approx. $13,500 in 5 years If she borrows from the Plan, her repayments will grow to the same (approx.) $13,500 in 5 years. Her out of pocket is the same either way, so it’s a wash. And incidentally that disproves the myth that interest on a Plan loan is double taxed. Plan loan interest is not double taxed but could be disadvantaged relative to a commercial loan if interest on the latter is deductible (qualifying HELOC perhaps?). Nor is one paying oneself back rather than the bank or credit card company. You can’t pull yourself out of the quicksand by tugging on your own hair. But in the real world a commercial loan, particularly for someone who needs a loan, is likely be substantially more expensive than an account secured Plan loan. Let’s say by even a modest 2% a year. That difference, if contributed to the Plan, effectively increases the Plan’s investment rate of return by 2% a year. In our example the $10K Plan loan results in a Plan balance of approx. $14,900. And that's without any consideration of the possible tax benefits associated with the marginal additional contribution. It doesn’t matter for purposes of this analysis whether the Plan loan is from a traditional or Roth bucket. It may matter if the commercial loan interest is deductible And, of course, assumptions about Plan investment return are assumptions.

Just a reminder that in addition to the higher early withdrawal penalty for SIMPLE IRAs less than 2 years old, such accounts can only be rolled over or transferred to another SIMPLE IRA. And might mention that only one rollover of an IRA of any kind per individual is allowed within any 365 day period. Latter is a trap for individuals who elect to consolidate IRAs and go the rollover rather than transfer route. Participants in the presented scenario might appreciate a letter with this information spelled out a little more than is necessary in this forum.

Dear AJC - With your question you have entered the Twilight Zone. Assuming this is not a new policy (purchased within a year of the applicable RMD year-end) or a paid-up policy (which differs from a policy that is merely self supporting), and depending on the purpose of the valuation, there are guidelines, some safe harbors, and a lot of facts and circumstances wiggle room. Thank goodness IRAs are not permitted to own life insurance and relatively few qualified plans accommodate it. For RMD purposes we generally look to Rev Proc 2005-25. But one of the more comprehensive overviews of the subject can be found at <https://theasagroup.com/wp-content/uploads/JHancock-Valuation-of-Life-Insurance-Policies.pdf>. Good luck.