Artie M

@BG5150 The OP stated the participant contributed after-tax contributions then made an in-plan conversion to Roth. I agree with you, from a practical standpoint, I think most modern recordkeepers (Empower, Fidelity, Schwab, Ascensus, Principal, etc.) distribute excesses following these rules: The plan document or administrative procedures specify the ordering. The recordkeeping system calculates the corrective distribution and allocates it between pre-tax and Roth sources accordingly. Plans typically don't have discretion after the fact to choose whichever source is more favorable. Here, it seems that the document does not state ordering and the recordkeeper is not offering up a method.

Agree. If the amounts were forfeited, they were forfeited... even though not moved to forfeitures.

Be careful to note that "unmatched elective salary deferrals" under the IRS fix-it guide would include "unmatched... after-tax and Roth contributions." A lot of folks take that language to only include pre-tax deferrals. Especially when reading the examples--they do not include any after-tax or Roth contributions in their facts. Operationally, the participant should have been limited on his after-tax contributions earlier in the year (since solo 401(k), they should know all the contributions, comp, etc.) so this doesn't occur. Next year.... Also, because it is a solo 401(k), you really need to know what the document states. The correction could vary by document provider (Ascensus, Schwab, Fidelity, Employee Fiduciary, MySolo401k, etc.). As always, first look to the plan/prototype language. Assuming the plan document is silent, it seems that EPCRS would point to reducing/distributing the after-tax contributions. See excerpt from RP-2021-30, §6.06(2) The nuance under your facts is there was also an in-plan Roth conversion. In my experience, most recordkeepers would still process a §415 excess annual addition correction with the distribution coming from the Roth source (plus earnings) attributable to those converted after-tax contributions. The exact mechanics may depend on the recordkeeper's system (and the plan documents). As far as reporting, there is no perfect answer but Code E appears to be the most defensible. This is a 415 correction ultimately. Code E is for an EPCRS correction. Code B has some appeal as the source of the distribution will be from the designated Roth account. However, the instructions for Code B state something like use E for a 415 corrective distribution. Code 8 seems the least defensible because the distribution is not due to excess deferrals (402(g) fix), excess contributions (ADP fix) or excess aggregate contributions (ACP fix), which is what that 8 is intended to cover. In case of an audit, we previously have put the following in a file documenting this type of correction: “The distribution corrects a §415 excess annual addition under the EPCRS correction methodology of Rev. Proc. 2021-30 §6.06. The excess is corrected by distributing the participant's unmatched after-tax contribution amount (plus earnings), notwithstanding that the amount currently resides in a designated Roth account following an in-plan Roth conversion. Reporting on Form 1099-R as Code E is a reasonable and supportable position.” Caveat though: make sure the recordkeeper/TPA doesn't have a strong coding convention for Roth-source 415 correction. If they do, using something different could lead to confusion or unnecessary IRS correspondence if audited. All just thoughts...

you are attributing the ownership of the spouse to the other spouse and then "reattributing" their ownership back and forth... don't reattribute ownership.

I thought your facts assumed death. Also, if the participant was the sole participant it seems likely the plan sponsor would know if they died. Also as a sole participant, I question whether the plan sponsor continues to exist... solo 401k or what, or, if it does continue to exist, it could terminate the plan and force the distribution.

Don't think so. I am not aware of a §401(a)(9) rule (or other) that would require or permit the administrator to force a distribution before 2035 merely because the beneficiary has failed to file a claim, assuming the plan document itself does not contain an earlier distribution provision. Under your facts, there is no annual RMD amount that must be imposed/distributed before 2035. Rather, the requirement is that the entire remaining account be distributed by December 31, 2035. Given your area of interest, I also think there is also the issue of fiduciary prudence and missing-participant administration until 2035. That is, to ensure proper distribution, the administrator should: Properly identify the beneficiary or all the beneficiaries; provide required notices and distribution information to them; maintain records; make reasonable efforts to locate a missing beneficiary if necessary; and continue to administer the account under the plan. It would be especially important to make periodic communications or outreach attempts to ensure that a beneficiary doesn’t end up becoming a lost beneficiary so, if the beneficiary remains simply unresponsive, invoke the plan's default distribution provisions sufficiently before the 2035 deadline to ensure the distribution is actually completed by December 31, 2035.

Based on the assumptions and plan silent, the beneficiary is subject to the SECURE Act 10-year rule. Because death occurred before the participant's RBD, there are no annual RMDs during years 1-9 and the statute would require the entire account be distributed by December 31, 2035. Different result under pre-SECURE Act, where the September 30 beneficiary determination date and December 31 first-distribution-year deadlines often drove election timing. For a non-EDB inheriting from a participant who died before the RBD, the SECURE Act's 10-year rule largely eliminates those earlier distribution-election deadlines.

@BG5150 How it is treated on the partnership's returns doesn't change what may have happened in fact. If the partnership paid the partners the money that should have been deferred, even if it took a deduction of the amount as a deferral as opposed to e.g., an additional amount of a guaranteed payment, it paid the partners the money and therefore there seems to be a MDO. The language quoted in my post above seems to state pretty clearly that the partnership paid the money to the partners and asked the partners to send the money to the 401k. If the company paid the partner the amount of their elected deferrals, its a MDO.... seems the same to me. How can it be a late deposit if the partnership did not retain the funds (they said they were paid the funds)? Yes, I know the horse is dead....

Since it is on the SPARK website and the Spark website is updated, it seems like that would be the latest version. Note that Version 1.01 is actually the second version. The first version was originally issued in December 2011. Don't know the cite for this but I have this in my Spark definitions "file". The website does not state that this document is "maintained" but there are other resources provided on the website that are fairly current. SPARK could circulate a member-only update that is not publicly available but I've not heard of them doing so. From a practical ERISA perspective, if a client asked me whether using the SPARK glossary creates a problem because it is "old," I would generally say no (or at least it shouldn't). The DOL regulations require access to a glossary of investment-related terms. The key is whether the provided glossary (whether SPARK or not, or version 1.01 or not) adequately covers the investment terms that actually appear in the plan's disclosures and designated investment alternatives. The SPARK document itself expressly contemplates that plan sponsors may customize and supplement it.

Dunno. This sounds like they were paid and then asked to send money to the plan. The quoted language makes it seem like there is no "withholding" event. I am very uncomfortable with the process of paying a partner money and then asking them to write a check to the plan. Even though partners, the arrangement is still a CODA-elect before comp becomes currently available. In your situation, did the partnership: A. Pay the partner 100% of the 2025 compensation and never reduce the cash distribution? or B. Retain the elected amount but simply fail to transmit it to the plan? If A, its a missed deferral opportunity. If B, late deposit/late remittance (because the partnership had effectively segregated the deferral amount but failed to fund the plan timely).

As @Peter Gulia states, the 401k regulations do not define “principal residence.” However, there is solid IRS authority indicating that a mobile home, trailer, house trailer, or similar dwelling can constitute a “principal residence” for federal tax purposes (and should, without a prohibition, be relevant to the 401(k) hardship distribution rules). The hardship regulations under IRC §401(k) use the term “principal residence.” The IRS and Treasury have long interpreted “principal residence” broadly under IRC §121. Treasury regulations under §121 expressly recognize mobile homes and house trailers as residences. Treas. Reg. §1.121-1(b)(1) provides: “A residence may include a houseboat, a house trailer, or the house or apartment that the taxpayer is entitled to occupy as a tenant stockholder in a cooperative housing corporation....” (emphasis added). The regulations use the phrase “may include” denoting that the regulations list is not exhaustive but illustrative. We have consistently viewed this regulation as strong support for the proposition that recreational vehicles, mobile homes, and trailers can be principal residences for the purpose of a 401(k) hardship distribution. The issue here really is whether the travel trailer is truly the participant’s principal residence. This becomes a facts and circumstances determination. So, you may need more facts such as: where the participant actually lives, their mailing address, utilities, etc. There is a list of factors in the regulation. The determination is easier when there is a foreclosure with an actual mortgage/security interest. If the lender is foreclosing on the mobile home itself, or the land and improvements including the home, that fits more comfortably within the hardship safe harbor. Some recordkeepers are overly restrictive and assume a “principal residence” must be fixed real property. There is language in the 121 regulations stating that a residence doesn't include " personal property that is not a fixture under local law" which the recordkeepers point to but I believe this is a misapplication of this rule. They say a trailer with wheels isn't fixed to the property. These recordkeepers usually citing state law regarding the definition of a residence in the state in question. My recollection is that there is substantial authority contradicting that position for federal tax purposes. Note if youR plan uses self-certification… without actual knowledge…

tl;dr version Nowhere in your facts do you say anything about the participant or alternative payee presenting an order or decree (something that could reasonably be interpreted as a domestic relations order) to the plan QDRO administrator to determine if there is a QDRO.... whether 11 years ago or recently. Your statement that a QDRO can be put in place well after the divorce is accurate but that doesn't mean it can be retroactive. Once benefits are being paid, then the QDRO would need to conform to the payment structure. A DB plan QDRO could be a separate interest or a shared/stream of payment QDRO. These are significantly different. Also, if there was no QDRO in plan when the participant elected his 10-year certain and life annuity, I find it difficult to believe that the plan would have made any adjustments to the annuity payment for a "potential" QDRO. Also, if the P elected the 10-year certain and life annuity, there is very little protection for the spouse (unless it is a JSA with 10-year certain annuity, which is very unusual). Under the usual 10-year certain and life annuity, payments will stop when participant dies (10 year certain period already over under your facts) and there is no survivor benefit. From a plan perspective, the alternate payee could get a new QDRO to conform to the current situation, perhaps even getting a greater percentage of the income stream that previously contemplated to make up for benefits already paid. But again, I don't see where the plan would have adjusted anything (and no liability for the plan) without a QDRO in place years ago. If the plan reduced the partcipant's benefit without an actual QDRO in place, the participant should file a claim for benefits of the shorted amount. The alternate payee could sue the participant for any benefits they already collected... the QDRO they have may have a "constructive trust" provision... but this would be outside the plan context.

Not sure if I have ever been called "mainstream". I would say I can be overly conservative at times. Granted some of this goes (way) back to one of my first IRS audits where the client was berated--no penalties but was told don't do it again--for paying a participant's legitimate medical expense but the substantiation provided to the auditor was the participant's master card receipt from the emergency room. The IRS agent said this was not payment for a medical expense but was payment for credit card debt. I think it was harsh but the client changed its procedures as this was an old school "resident agent" for a very large corporation where the audit examination process was essentially continuous. I have also had internal auditors sample some of the documents and come back with similar issues. Perhaps it is battered-lawyer syndrome but I "shy away" from these issues when I can.

I don't believe there is a provision in the hardship regulations that states that a plan “must provide” that self-certification is permitted for an administrator to rely on a participant's representations. Thus, if a plan simply permits hardship distributions and does not require a different substantiation method, the administrator can ordinarily use self-certification operationally without a specific plan provision authorizing it. However, if a plan’s governing documents (e.g., the plan document, SPD, and/or incorporated administrative hardship procedures) require documentation or substantiation, operating solely on self-certification would cause an operational failure. So, self-certification need not be expressly authorized but using it cannot contradict the plan’s existing substantiation requirements. If the client desires self-certification, our approach, ultra conservative, is to include explicit language in the plan document, the SPD and other hardship procedures to permit self-certification and, by doing this, we will review all the "relevant" documents to ensure they are consistent (and inconsistent language shouldn't exist). .

If he already paid for the furnace repairs etc. then there is no immediate and heavy financial need. The hardship rule @Peter Gulia cites is intended to cover an existing need to repair. Here, the need is for a reimbursement. It would be different if these were unpaid repair invoices. Without that, approving a hardship solely because the participant previously spent money on repairs and now has cash-flow issues could be difficult to square with the “immediate and heavy” requirement even if the company is sympathetic to the participant's needs. Now, if the plan doesn't use the safe-harbor rules and the administrator can reasonably conclude it still meets the general "immediate and heavy financial need" standing, it might be possible. The other thing they might consider would be if she has any eligible medical expenses. Though she is not a dependent--I don't advise this but it is a technical possibility--he could name her as his primary beneficiary under the plan. See http://https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(d)(3)(ii)(B)(1)