Paul I

The IRS is in a position to decide what they will or will not accept in response to the penalty letter. Was the IRS letter a CP 283 Notice? If the reasonable letter was not seen by the IRS or was somewhat superficial, then consider putting together a complete and detailed explanation (with facts and dates including efforts to get the formed files and failures on the part of service providers). The DFVCP program is cheap relative to other costs associated with fighting the letter. Consider filing under the DFVCP and then responding to the letter with the update reasonable cause letter and noting the DFVCP filing. In many cases, the IRS is more interested in compliance than it is in collecting penalties. You may be pleasantly surprised by the response.

The details are very helpful. Since the Roth conversion is taking place in 2026, the 1099-R will be for 2026 filed on a 2026 Form 1099-R. On that 2026 1099-R, Box 1 Gross Amount will be the amount of the contribution. Box 2a Taxable Amount will be the amount of the contribution Box 7 will be Code G. You should remind the client to factor the taxable amount into the calculation of any estimated tax withholding for 2026. Consider offering to give the financial adviser a copy of the contribution check as documentation of the after-tax contribution creating basis in the plan.

From where did this money come from? Was the after-tax money a contribution into your client's plan or was it a rollover into your client's plan from another qualified plan, or from somewhere else? Once the after-tax money was inside your client's plan, that after-tax account should have had a tax basis associated with it. This would then get to next question about when was or will the after-tax account was/is being converted to Roth?

It would help to have clarity on exactly what is being reported. Are you preparing a 1099-R for: the plan from which the after-tax money was moved into a receiving plan, OR for a plan where an in-plan rollover was made from an after-tax account into a Roth account, OR something else?

It is not too late to file the 1099R for 2025. It is never too late to file 1099R for 2025 as long as you are reporting amounts that are taxable in 2025. To further document the prior comments, if you look at page 7 of the instructions for the 2025 instructions for 1099-R it says: "Corrective Distributions You must report on Form 1099-R corrective distributions of excess deferrals, excess contributions and excess aggregate contributions under section 401(a) plans, section 401(k) cash or deferred arrangements,..." "Excess deferrals. Excess deferrals under section 402(g) can occur in section 401(k) plans, section 403(b) plans, or SARSEPs. If distributed by April 15 of the year following the year of deferral, the excess is taxable to the participant in the year of deferral (other than designated Roth contributions), but the earnings are taxable in the year distributed. Except for a SARSEP, if the distribution occurs after April 15, the excess is taxable in the year of deferral and the year distributed. " I repeat my earlier caution: If the refund is not made by April 15, 2025, it is still taxable for 2025 and the excess amount must remain in the plan and cannot be removed until a distributable event occurs (or is corrected under EPCRS). When the excess amount subsequently is paid, it is taxed again in the year of distribution.

Lets break is down further. Merging plan Participant terminates in 2025. In calendar year 2026, the plan files a 2025 8955 and reports the participant with Code A. In calendar year 2026, the plan merges mid year into the surviving plan. The merging plan files a final 5500 for the short plan year ending on the date of the merger. The plan files a 2026 8955 reporting the participant as Code D Surviving plan In calendar year 2026, participant has vested account balance transferred into the surviving plan. In calendar year 2027, the surviving plan files a 2026 8955. The participant is reported on the 2026 8955 with Code A.

Yes, a 2025 1099R still needs to be prepared and included as 2025 income on the participant's tax return. If they already filed their 2025 return, then they need to file an amended return. If the refund is not made by April 15, 2025, it is still taxable for 2025 and the excess amount must remain in the plan and cannot be removed until a distributable event occurs (or is corrected under EPCRS). When the excess amount subsequently is paid, it is taxed again in the year of distribution. The taxation in 2025 does not create tax basis in the plan.

This issue has been addressed by each both the IRS and DOL. See IRS §1.401(k)-1(a)(6)(iv) and DOL Advisory Opinion 99-04A.

The intent for reporting participants on a For 8955-SSA is to enable the Social Security Administration to inform someone that they may have a retirement benefit available. The SSA uses the a pairing of the individual's SSN with the EIN of the plan that has the available benefit. With the plan merger, the EIN of the plan that has the available benefit will be the surviving plan from the merger. Because the plan is merging in 2026, the plan will file a 5500 for the entire plan year using its own EIN. The 2025 terminations can be reported on the Form 8955-SSA for 2025 also using the plan's own EIN. When the merger occurs, the merging plan will file a final 5500 for 2026 for the short plan year ending on the date of the merger using the plan's own EIN. The plan should file for the short year a Form 8955-SSA using the plan's own EIN for all participants who previously were reported on Form 8955-SSA using the plan's own EIN and Code D (delete) for all participants. The surviving plan should include all of the merged-in terminated vested participants on its 2026 Form 8955-SSA with a Code A.

He gets 2 1099Rs, one for his 2025 tax filing reporting the return of the $4100 with a Code E in Box 7 and one for his 2026 tax filing reporting the earnings also with a Code E in Box 7. Code E is for Distributions under Employee Plans Compliance Resolution System (EPCRS).

Interesting question. When a Sole Proprietor files their income taxes, there is a distinction between what is deductible as a business expense and what is deductible as a personal expense. This can be influenced by the type of business that the individual has formed and whether there are choices on how the business is taxed (like with LLCs). For a sole proprietor, the instructions to Schedule C say "If the plan included you as a self-employed person, enter the contributions made as an employer on your behalf on Schedule 1 (Form 1040), line 16, not on Schedule C." which flows into a Line 10 on the 1040. If the only contribution are in question are elective deferrals, there is some logic to treat them solely as late deposits. Consider other businesses that have late deposits. They do not restate the businesses tax filing for a prior year because there were late deposits. This is not advice.

If the assets fall below the $250,000 threshold for a Form 5500-EZ filer, no EZ must be filed but you definitely should not check the final filing box. Keep in mind that a terminating plan for an EZ filer that checks it is a final filing must submit a form showing the assets going to zero without regard to the $250,000 threshold. If a plan was required to file an SF because the plan covered non-owner participants (including LTPTs), and that plan subsequently only covered owners, the file the SF for the last year in which there were non-owners at any time during the plan year. For the year in which there are only owners, the plan must file an EZ if the assets are above the threshold, or optionally may file if the assets are below the threshold. I suggest filing the EZ regardless of the asset level because it will document that a 5500 was filed for the plan for that year. The SFs are processed by the DOL. The EZs are processed by the IRS (even though they are filed through EFAST2). The plan may receive a letter from the DOL noting that there was an SF for the prior year and not the current year. The plan also may receive a letter from the IRS that the EZ was not an initial filing and the plan had assets at the beginning of the year. In both cases, the appropriate response is an explanation of the facts.

I wholeheartedly agree with @ESOP Guy and will add that if the company gives the participant a promissory note to repurchase the shares, the transaction almost certainly will be considered a prohibited transaction subject to all of the associated penalties.

I agree. Here is the 2022 Form W-4P https://benefitslink.com/src/irs/fw4p-dft-11052021.pdf as it was being implemented. In particular, see the Caution on page 5. Essentially, if a participant had an election prior to the implementation of the new form, the participant did not have to change their election, and a processor could use a computational bridge to for their system to solve their calculations to yield the pre-existing result. There is a caveat I have seen that says if the participant's tax situation changes, then they need to file a new form. I expect the new vendor is saying they cannot continue to honor the pre-existing elections because their system does is not set up have the computational bridge.

If you have multiple plans (including plans within a controlled group) they all must use the top paid group rules or else none of the plans can use the top paid group rules. If you have multiple plans they all must use the calendar year look-back rules or else none of the plans can use the calendar year look-back rules. This most likely would be an issue come into to play if one or more of the plan has a non-calendar year plan year. The top paid group rules and calendar year look-back rules are applied independently from each other. Amending the plans now - like ASAP - is easy and will avoid getting overlooked with the looming chaos of SECURE 2.0 amendments and Cycle 4 amendments coming later this year. Keep in mind, though, that the HCE determination is critical to coverage, nondiscrimination and ADP/ACP testing. The plan cannot just amend now and disregard the fact that prior years' testing did not determine HCEs accurately.