Dox3725

After some further discussions with my TPA, I think my understanding is a little better now, which confirms what you are saying, I think. I am not having a new 401k. It is the same 401k. The TPA is just updating the cookie-cutter plan document Vanguard provided. The new plan document will allow employees (in the future maybe), in-service distribution, and after-tax contribution. My understanding is that the TPA will be able to re-allocate the excessive profit sharing to the DB plan by filing some correction letter.

The reason for a second 401K is that my TBA said the 401k and the DB plan are closely related. She does not want to only manages the DB plan, but blind to the other piece of the puzzle. Plus, the new 401k allows for after-tax contribution and in service distribution, which allow for something called mega backdoor roths. I do not know whether I will take advantage of the function yet, but it seems a nice option to have.

I am a LLC taxed as a S-corp and my W-2 is less than $266,667. So I will run the numbers with my TPA for sure. Thank you for your inputs.

Thank you for your response! I am indeed discussing with my TPA at the moment for solutions. I want to educate myself as well. So far, I contributed $16000 as profit sharing in 2020 and another $19500 as elective-deferral. I am not sure whether that will make any difference.

I am not sure whether this forum would be helpful to my situation or even appropriate for me to ask here. It looks like most people are professionals here and I am definitely not. I looked through many places for insight into my situation. Unfortunately, I did not find much public information so far. So I hope to have better luck here. I am self-employed and I have a solo 401k opened in 2019. I opened a defined benefit cash balance plan and a regular 401k this week with a third party administrator. The intention is to roll over the solo 401k fund into the regular 401k and contribute to the DB plan as well for year 2020. I just realized that there will be excessive profit sharing for year 2020, because the profit sharing is reduced to 6% due to the cash balance plan. I wonder what options that I have right now to correct the mistake. The solo 401k is at Vanguard and I am told by Vanguard excessive profit sharing is usually treated as contribution for future years. I also need to file Form 5330 and a pay 10% penalty. Does it mean I can not close this solo 401k and rollover the fund into the new regular 401k this year, until the excessive profit sharing is resolved? My understanding is the excessive amount may take two more years, given my expected income. At this point, both the DB plan and the solo 401k were already filed with IRS by the third party administrator, but no accounts have been opened anywhere and no money has been contributed. Any insight is greatly appreciated.