Jakyasar

Late Friday, brain freeze time Need to check something with the gurus as I have been researching and failing to find. Testing for 401a26 and annual method fails. Software has couple options: 1. Change to average salary (highest 3) and test against annual accrual 2. Change to average salary and use accrued-to-date method (been doing the plan since day one so have all the data) Any issues with either of the above? Also, I could not find anything that would prohibit me testing 410b and 401a4 using different methods than 401a26. Anything I am not able to find? Thank you

Thanks for the advice/warnings, at this time I am researching on what can be done if anything. Nothing would be done without a lawyer.

Agree but wanted to check anyway. Thank you for the reference.

Agree but the CPA is a friend of mine and would like to help out, if I can and with an attorney involved. They know my requirements if they want me involved.

No nothing, zilch, nada was prepared as far as the documents go. No 5500 was filed (yes, required), no actuarial certifications were done (no actuary was involved). They just made the deposits and took the deductions.

During 2020, did a proposal and never heard from the prospect and thought went away somewhere else. Just got an email from the CPA stating that, the prospect has been making contributions and taking deductions with no actuary and paperwork. No 5500 forms were filed but that is the easy part. They are now asking me to fix this. Is this something that can be self-corrected starting with 2020 plan year? Any thoughts/comments appreciated.

Mathematically yes, how about the method, is that acceptable if yes, does it need to be adjusted by any interest adjustment?

Hi Corey, thank you for taking the time with the explanation and warning but my question was about the technique rather than the available options - they are always presented to the clients. I would never let the client go off too easily on any option other than the term, in the least, and always and strongly advise them to choose J&S, if married or have other beneficiary options. David, yes, I am aware of the 12/31/2024 but I was just providing as an example however, thanks for pointing it out, just in case. I am trying to confirm that it is ok the client can get 12x the payment in one shot rather than monthly withdrawals. It is a fight with them and at the end of the day, they do whatever they want despite my written CYA. All I am looking for is some suggestions/comments on the math technique.

Sorry, misworded, what I meant was, getting the RMD all in one shot rather than as monthly benefit, not lump sum per se.

Hi A bit confused due to intensive number crunching and brain is fried so need to double check the following and also the client may not be listening to me. Client turned 73 in 2025, so RMD is due 4/1/2026. Already 100% vested Q Part 1 12/31/2025 AB is 1,000/month and AE at 4/1/2026 is 1,090/month (making up the numbers) Starting 4/1/2026, monthly would get 1,090/month till 12/31/2026 (9 payments). Now they want to take the full amount on 4/1/2026 i.e. 9,810 (9*1090) Any problem with this? Q Part 2 Come 1/1/2027, the RMD continues to be 1,090/month till 4/1/2027 but does not take any monthly as he wants to take a lump sum. Say 12/31/2026 AB is now 2,200/month and next payment cycle is 4/1/2027 and the AE at 4/1/2027 is 1,300/month. So starting 4/1/2027, RMD is 1,300/month+1,090/month Clients says I want to take out all in one lump sum on 4/1/2027 i.e. 1,090*12 + 1,300*9 And future years continue with the same cycle. What am I calculating/thinking wrong?

And also key employees

Another potential client who screwed up, must be me. This one has employees. CB cover owner/non-HCE where all others are excluded and DC plan. All others are HCEs. Non PBGC covered. As I just found out, client made a deposit during the final plan year without checking with me and also had 20% return. So now have roughly 200k excess over the account balances. Same situation as before, terminated 12/31/2025, excess to be reverted to corporation with administrative procedure stating excess goes to QRP. Simply amending the formula will eat up almost all of the excess as the owner is far away from 415 limits. The problem here is I may have discrimination issues. Let's say I amend the formula just to increase the owner under the new law and test the plans and I pass (it does), is this a BRF/discrimination issue? How about I increase the owner and also provide a small increase to the non-HCE and re-test all plans again, would that be ok and better? Any other solutions that I am not seeing? Never had this issue before.

One lifer DB plan. Plan frozen/terminated 12/31/2025 with perfect funding with excess, if any, going to qualified replacement plan (QRP). Client did not tell me about additional contributions made during 2025, simply forgot. Big amount too. Now have quite an excess but lumpsum still under 415 limit. Solutions for retroactive amendments? Amend to have a retroactive benefit increase Amend from QRP allocation to participant allocation Any thoughts? Thanks

Agree with Bri, just check the top heavy i.e. which plan provides it? Hopefully only DC. If the DC plan allocation is by groups, make sure you still test 1/3 rule on gateway thoiugh.

Very common to add a second PS only plan and merge the 2 plans later. However, is this a cost-effective way to approach i.e. between the plan set up and annual administration? Afterall, you may only need a small amount of contribution to pass. As Bill mentioned, 11-g is a solution with the terminated employees but they will need a vesting adjustment, some say partial, some say 100% vesting. If they are already 100% vested, no issues. But, can you amend the plan now to increase the benefit retro to 2025 e.g. remove last day rule and/or 1000 rule only for 2025? I do not know the answer to it. If you can, then you can deduct for 2025. just thinking out loud with some random thoughts.

I think I know the answer but I wanted to check the following: Existing 401k plan for a sole-prop. The election for deferral amount had to be made by 12/31/2025 for 2025 as it cannot be done by 4/15/2026? After year end only applies for new plans. Am I correct?

Hi David, good point on the earnings. Thank you

Thank you for clarifying and all the information

Hi Bri, thank you for your information. Speaking mathematically (I am a visual person), if making 400k of net c and for 2026: 100k goes to CB - no Roth here 32,500 of deferral - Roth The balance of 47,500 can be after tax contribution??? For this, the plan has to allow after tax contributions. Let's put aside the 6% deduction or does it have to be met first? What am I doing wrong with the math? Of course, if a rank&file is hired ACP will be an issue.

As a non-DC person, I am trying to understand how this works. A 50+ year old sole-prop client (no employees and reading online about it) contributing very large amount into a CB plan and 6% PS plus pre-tax deferral is asking me about restructuring her 401k plan with mega backdoor Roth. Any comments on what can be done are appreciated.

I thought exclusion by name was a BRF issue and not considered a reasonable classification!! I would have written as any HCE not an owner is excluded.

Keep in mind that if you have an eligible payroll large enough, 31% test may allow you to make a DC plan contribution (including all employer portion i.e. all match and PS) well in excess of 6%, all depends on the CB contribution level.

Hi This may have been discussed before but cannot remember/locate and having a slow day today (mentally and smoke is coming out my head). I have been trying to find material for the following situation. Existing DC plan, current participants are past age 65 (NRA) Starting a new DB plan for 2025 which will have NRA 65 with 5 YOP i.e. if someone is currently age 67, NRA is 72. I have 3 participants all past 65 with different ages. Currently 66, 67 and 68. For DB, NRA would be 71, 72 and 73 (they are all past NRA under DC). What ages am I testing them for combined plans?

Corey, tx for your comments. No one worked 1000+ hours

Friday afternoon, no brain activity as usual. Combo CB/DC. CG with ABC corp and XYZ corp ABC sponsors both plans and XYZ is an adopting employer for DC plan only DC is 401k with SH match CB excludes all XYZ employees. All ABC employees participate in both plans and get PS allocation as well. None of the XYZ employees defer and none get any PS allocation either (401k/SH has 3 months and PS has 12 months+1000 hours). None of the XYZ employees work 1000 hours but all eligible for deferral+SH and since no one defers, no one get SH thus T/H is satisfied. ABC eligible compensation is 500k and XYZ eligible compensation is 100k Need to use 31% rule for deduction. Do I use 500k or 600k? Thanks