Artie M

To correct the error, the deferrals should be transferred, adjusted for earnings, from the pre-tax account to the Roth account. We have done this by issuing a corrected Form W-2 for the year of error. The downside to this was that the employee then had to file an amended Form 1040 for that year. We also saw that the IRS website (Fixing common mistakes - Correcting a Roth contribution failure | Internal Revenue Service) states that the employer can include the amount transferred from the pre-tax to the Roth account in the former employee's compensation in the year of transfer, which might be easier for you since this is a multiple year issue. We didn't do that because we weren't sure what would happen with the required withholding and we were only dealing with one year. Note that only federal income tax withholding is at issue because FICA etc. should have been previously applied.

Usually, plans permit a distribution of rollover amounts at any time. The distribution would be subject to tax so the 20% withholding is not necessarily a bad thing and, yes, unless an exception applies that distribution would be subject to the 10% premature withdrawal tax. Peter seems to have covered the possible exceptions. Don't think the 72t2Aiii exception would apply because it would cover the client's disability and not the father's, so the medical expense exception seems like the best possibility. If the father is indeed disabled, it seems like there would be a very good chance he would be a dependent of your client's. The father may qualify for a dependent if his gross income doesn't exceed $5,200 (2025) and the support the client provides exceeds the father's income. Social Security doesn't generally count towards the father's gross income for this purpose but income generally does. The client can count food, medical bills, living expenses as well as the fmv of the portion of the home the father occupies as part of the support he provides his father. Medically necessary home improvements, e.g., ramps, wider doorways, bathroom modifications, etc. can be deductible under 213 if directly related to the medical condition and not just for general home improvement. This should all be properly documented with letters from doctors, contractors, etc. I believe that only the portion of the medically necessary expenses in excess 7.5% of the client's AGI would be able to escape the 10% tax but you should confirm. Like Peter says, he should have his CPA/lawyer/financial advisor look at all of this.

Like the others have said, since an IRA is not a qualified retirement plan, a QDRO is generally not used to split the assets (IRC s 408(d)(6)). Instead, IRAs are split via a transfer incident to divorce (which is just a provision in the settlement agreement/divorce decree that directs the transfer of IRA funds or a percentage of the IRA funds to the non-owner's spouse's own IRA). The settlement agreement should include language that shows how the assets will be divided, the method of division, the valuation date for the IRA division, how gains and losses will be divided, and who pays the fees for the division. The specifics of what is needed may be affected by the applicable state law. Usually, before the transfer of IRA assets is initiated, the receiving spouse needs to have an IRA account open in their name. If the receiving spouse does not have an IRA, they should open one (the easiest would be to open one with the IRA custodian where the main IRA is held). Once the IRA is opened, the former spouse should send the divorce decree/separation agreement to the IRA custodian holding the IRA assets, indicating how the assets will be split. If the IRA custodian is satisfied with the documentation provided, the funds can then be transferred to the receiving spouse’s IRA usually within a short time period of days or weeks. This should be able to still be done even though the receiving spouse has died. If they have an IRA already open that would be easiest, but the executor of the estate (assuming one has been appointed, etc.) could open up an IRA. The issue again would be whether the IRA custodian is satisfied with the documentation and the structure of the transfer.

An IRA is a non-probate asset that does not generally get settled through a will. The IRA designation forms and agreement will determine the beneficiary. If there is no designated beneficiary, then you look to the IRA agreement to determine the beneficiary. Each IRA custodian has its own agreement and each will have their own provision to determine who inherits the IRA when there is no beneficiary named on the form, when there is no form at all, or when the form is defective. Sometimes it will be clean and simple with the spouse as the default beneficiary, then the children, if there is no surviving spouse. But, here, based what the bank is saying, your IRA agreement may provide that upon the death of the account owner with no designated beneficiary, the proceeds will default to the estate of the account owner. You should confirm that this is correct by asking the IRA custodian for a copy of the IRA agreement and for them to point you to the portion of the IRA agreement that provides the default beneficiary language (or as fmsinc states, see "what does your Order of Precedence say"), In these instances, we have seen where IRA custodians will not permit an estate to assign or transfer the IRA out of the estate to a properly titled inherited IRA for estate beneficiaries, although the IRS permits it, and will instead require that the entire IRA balance be paid to the estate. Regrettably, unless the IRA agreement states otherwise, this appears to be within the IRA custodian's powers. If this is done, it will be a taxable distribution(s) that cannot be undone. (Also, depending on the size of the estate there may be estate taxes.) If the beneficiary is the estate, the balance would be required to be paid out to the estate within 5 years.

sorry for not giving full references...

Roth gets the 50% QNEC per Rev. Proc. 2021-30, App. A. .05(3)

Once you have your facts lined up... “Compensation” for HCE determination means “… compensation within the meaning of section 415(c)(3) without regard to sections 125, 402(a)(8), and 402(h)(1)(B) and, in the case of employer contributions made pursuant to a salary reduction agreement, without regard to section 403(b).” The definition of compensation found in IRC § 415(c)(3)(A) includes all compensation paid by the “employer.” The "employer" for these purposes includes foreign companies in the controlled group. A plan may not automatically exclude compensation from foreign companies in the controlled group when determining HCE status. Furthermore, according to Reg. 1.415(c)-2(g)(5), the determination of whether an amount is treated as compensation under paragraph (b)(1) or (2) of Section 415 is made without regard to the exclusions from gross income under sections 872, 893, 894, 911, 931, and 933. This means 415 comp includes foreign earned income even if it is not included in gross income for regular tax purpsoes. However, there is an exception to the requirement to include foreign income in the determination of HCE status found in 1.415(c)-2(g)(5)(ii) under which compensation earned while a nonresident alien was not eligible for the plan can be excluded if the nonresident alien has no U.S. source income for the year. Note that this rule must be applied uniformly to all similarly situated employees.

There shouldn't be a legal impediment to merging the Plans (if there is a coverage issue, the client may need to enter VCP to resolve). Presumably, B and C are going to enter into a PEO agreement with the existing PEO; otherwise, I don't see them permitting the merger. Note that it is the PEO plan that will be merged into so you will need to seek their approval and will likely to coordinate with them along with the other recordkeeper(s)/administrator(s).

I don't have any authority readily available but a participant should be able to elect to have an amount in excess of the required withholding (here, 0%) on the distribution. Recordkeepers that we have worked with permit the election and have required that the participant fill out a Form W-4R in order to effect the additional withholding. Not that they are always right but... Here's a klip of part of the form used by one of the recordkeepers we have dealt with.

I agree the two companies are part of a controlled group. So, compensation for determining HCE status would be aggregated. Compensation as far as contributions on behalf of the participants, however, is usually based on compensation from the participating employer (confirm by checking document as Bill states), in which case, Company B comp would not be used for Company A plan contributions (Company B does not appear to participate in Company A's plan (which is fine as Bill states)). The spouse does not appear to be able to participate in Company A's plan unless she is an employee of Company A (based on the ownership percentages you provided, she does not appear to be a self-employed owner of Company A). If you want to include comp from Company B for purposes of contributions and you want to include the spouse in the Company A plan, perhaps Company B should adopt the Company A plan (especially since there are no other employees in Company B).

I have never worked with a cooperative so I don't come close to knowing the answer to your question. I guess I just have questions for my own education. Can it really be as easy as simply dividing 100% by the number of worker-owners? If set up as a S or C Corp (presumably corporate), I guess the worker-owners would own stock but in a cooperative I don't believe that stock provides them with an equity or ownership right. My understanding is that members of a coop usually only have the right to vote and the right to share in earnings. That is, the amount of stock "owned" by an owner doesn't really determine their vote because in a coop each member technically is always equal as each just gets one vote, right? Also, each member isn't allocated earnings based on their "equal" ownership rights but rather on their "patronage", e.g., the amount of work they put in or the amount of goods they put in. For instance, if this is a farmer's coop and a member brings in one bushel of tomatoes and another member brings in a truckful of avocadoes, their shares of the profit from the sale of the aggregate amount of produce is not going to be equal. Plus, if the worker owners were not treated as owners, I have to believe there would be a strong likelihood that there would be just a few HCEs and a multitude of NHCEs in these types of organizations. Sorry for the questions but this is an interesting question though, for me, purely academic.

ERISA requires that the plan administrator follow the plan documents and pay plan benefits to the beneficiary as determined under the plan. Thus, the determination of who is entitled to benefits under a plan as the beneficiary of a deceased participant depends on the plan's terms. Without knowing the language of the plan, I do not believe anyone can accurately respond to your question. The responders above all have solid questions and thoughts but without the terms of the plan each is responding with hypos or using assumptions. Note Peter Gulia's response contains "One imagines", "If so," "Many plans," "and no QDRO" with his ultimate conclusion being a question. You state that "The plan provides that a spouse must consent to an alternate beneficiary designation." If, for example, the plan uses typical wording such as "Any designation by a married Participant of a Beneficiary other than the Participant’s spouse will not be valid unless the Participant’s spouse consents in writing to such designation (which consent acknowledges the effect of such designation, the identity of any non-surviving spouse Beneficiary, including any class of Beneficiaries and contingent Beneficiaries, and is witnessed by a member of the Plan Administrator or a notary public)..., " then a conservative reading of this type of language would be that the 1988 beneficiary designation is invalid because, upon the new marriage (after the filing of the 1988 designation), the Participant's new spouse did not consent in writing to the prior designation (even if a prior spouse had consented to the designation). Like Peter G... not advice (just thoughts)

Depending on the facts, one of several earnings methods could be used. If permit participant direction of investments, if not, if have automatic deferrals, if most affected participants are NHCEs, etc... or if actual return less than DOL calculator then use the DOL calculator (as it is a floor). Ultimately, if the client is submitting this under VFCP it can use the DOL calculator. To me, the client (you) should do it right and submit the VFCP filing accordingly and also file an amended 5330 with explanation. In the VFCP filing the client should describe what happen edin the prior "correction" (and, if you cannot determine what happened, disclose that you don't know what was used to determine earnings in that correction) and then describe your "correction of the correction". If the client paid too much in earnings, it should just disclose that fact and tell the DOL that it is not going to seek the return of those amounts. The DOL should not have an issue with giving the participants an extra $100 (unless the $100 went to the plan sponsor's owner or only HCEs or something like that. I would also disclose that the demographics of the affected participant group wasn't just the plan sponsor or only HCEs or something like that). The worst thing about filing the amended 5330 is that the excise tax difference will likely be nominal (a % of a % is pretty low) and it sounds like the client might actually be seeking a refund. I would also describe what you are doing with the amended 5330 in the VFCP.

Another issue, based on your (Bruce1) original facts, the client wants to put the match in for the prior year. The only times we have utilized this type of match (including a triple stack) is when we had it in place at the beginning of the year, not after year end. I am not quickly finding any authority for this position... maybe just us being conservative.

When you say plan is a "SH 6% match," are you saying the match is 100% of deferrals up to 6% compensation? If so, there may be an issue under §1.401(m)-3(d)(3) (3) Limit on matching contributions. A plan that provides for matching contributions satisfies the requirements of this section only if— (i) Matching contributions are not made with respect to elective deferrals or employee contributions that exceed 6% of the employee's safe harbor compensation (within the meaning of §1.401(k)-3(b)(2)); and (ii) Matching contributions that are discretionary do not exceed 4% of the employee's safe harbor compensation. I read the reg to mean that only 6% of a participant's comp can be taken into account for all matches (reading the conjunctive "and"). Your proposal is going to take into account 10% for matches... at least if I am reading your facts correctly. Maybe I have been reading the reg wrong....

Right, the way I read the notice it doesn't affect lifetime RMDs, RMDs from inherited IRAs by “eligible designated beneficiaries,” or RMDs by beneficiaries who inherited before 2020. It only applies to those beneficiaries with annual RMDs within the 10-year period.

Ha. Circular non-answer.

They should look at the Sun Capital cases.. can they fit within those limited non- trades or businesses? Otherwise, they might be able to use an investment from a parallel "fund" or another unrelated minority investor (which could include management rollovers).

I do not recollect a restriction on the timing of deferrals. I will note that often times reducing the number of time deferral elections can be made ends up be a bigger administrative burden because all the changes are going to come at once. Also, if the employer does change the timeframe for making deferral elections from monthly to annually, you might want to suggest that the employer keep the monthly election if a participant wants to go to a 0% election.

It could simply be a matter of cost. Are there a lot more union employees than non-union employees? Also, there could be alot more turnover in the union group so they don't want to vest those amounts if they would otherwise be forfeited. Another thing could be that with unions employers also don't like to give if they don't get... so they might not want to give the SH unless they get something equivalent back from the union.

Rev. Proc. 2021-30, Section 6 (5) Special exceptions to full correction. .... (b) Delivery of small benefits. If the total corrective distribution due a participant or beneficiary is $75 or less, the Plan Sponsor is not required to make the corrective distribution if the reasonable direct costs of processing and delivering the distribution to the participant or beneficiary would exceed the amount of the distribution. This section 6.02(5)(b) does not apply to corrective contributions. Corrective contributions are required to be made with respect to a current or former participant, without regard to the amount of the corrective contributions So, under EPCRS, the corrective contribution should be made to the plan and, because the balance is under $75 (or the applicable fee), a distribution to the former participant does not have to be made and the contribution can be forfeited back to the plan.

My recollection is that you are to report amounts that would be used to pay for benefits that Medicare might pay to ensure that Medicare is not paying for benefits it should not otherwise pay. That is, if providing payments or benefits for which Medicare should be the Secondary Payer (or perhaps have a subrogation right) as opposed to being the primary payer. A settlement payment to pay for COBRA premiums, whether used or not, under a severance agreement does not appear to be the sort of amounts that are intended to be reported under these rules. If, on the other hand, the amounts were being paid for medical benefits received by or medical benefits were being provided to the Medicare eligible individual in settlement of some claim like a work injury, then those amounts likely would be reportable. Just my thoughts...

I just added some info regarding this topic on another thread on the board that discusses the pre-approved plan notice requirement (which may or may not still be needed depending on how you read it). Here's a link

Out of curiosity I ran a quick search and found the following on the IRS website, which implies the IRS no longer considers the notice requirement as adequate in addressing the definitely determinable issue. I also found this dealing with 403(b) standardized plan restatements: Q11: Are you taking the same positions relating to discretionary matching contributions and definitely determinable benefits as you took with the Cycle 3 DC plans? A11: The basis for our position on discretionary matching contributions contained in a Cycle 3 Section 401(a) defined contribution plan can be found in Treasury Regulation 1.401-1(b)(1)(ii). This regulation states that a 401(a) profit-sharing plan must provide a definite predetermined formula for allocating contributions made to the plan. Our application of the written defined contribution plan requirement (Treas. Reg. 1.403(b)-3(b)(3)) to the 403(b) Pre-approved Plans Program for Cycle 2 expects any allocation formula for an employer matching contribution to satisfy the concept of a definite predetermined formula. We will not permit the plan language for a discretionary matching contribution formula which represented a compromise on this issue in June of 2020 between the IRS and the practitioner community for the Cycle 3 401(a) defined contribution plans program. For a discretionary matching contribution formula to satisfy the definite predetermined requirement, the following aspects must be addressed in the plan document: The matching computation period, such as payroll period or plan year, must be identified; this will eliminate ambiguity over the need for a true-up. There must be a note regarding the possible need for a true-up at year end where the employer contributes more often than the computation period There must be a definite allocation formula for the discretionary match, such as “a discretionary match shall be allocated to each participant as a uniform rate, for example 100%, of deferrals up to a uniform deferral percentage The employer can have discretion over the matching contribution amount, the rate at which deferrals are matched, and any limit on the deferrals that are matched. The rate and limit are both factors in the determination of the amount of the contribution. The above sample discretionary matching contribution allocation formula retains this discretion but allows someone to know how it will be allocated. Regretfully, I did not find any IRS guidance on the original notice requirements though there I did see some commentary discussing it. See examples. New IRS Requirements for 401(k) Plan Discretionary Matching Contributions – Sequoia. Annual Notice of Discretionary Match in ‘Pre-Approved’ 401(k) Plans May Be Required Soon! - Ogletree New Requirements for Discretionary 401(k) Plan Matching Contributions | Foley & Lardner LLP

I just responded to another message on the board for something similar. I may be wrong here but my recollection is that in 2020 (or so, Cycle 3) the IRS began requiring pre-approved plans that have certain discretionary formulas to include annual notices with required information triggered to the funding date (not certain). I do not work with pre-approved plans and am not aware of this being expanded to individually designed plans. I also do not know if this is still the rule. If still in place not sure why it would not have been expanded to individually designed plans (other than perhaps the change in the determination letter process for individually designed plans) but if it was, please put the authority in a response!