Basically

A participant's wife is applying for SSDI. In the meantime the participant wants to take a hardship distribution of close to his plan balance. He has roughly - 1/3 ROTH deferral account 1/3 SH Match 1/3 PS 100% vested in all accounts. 1 - I would think he qualifies for a hardship dist... right? 2- If the dist happens, he must cease his deferrals for 6 months? Was that repealed? (well, you would think if he needs the $ he would stop deferring) 3- Taxes must be withheld (20%) and the 1099R would be coded as premature so will be subject to the 10% excise tax. What am I missing?

Question... if they made the election before the end of the year and then when all the dust settled they decide they don't want to go through with the full amount... they decide they want to reduce what they thought they wanted to ... is that ok?

A client received a letter that I have never seen. The notice tells them that the IRS has made changes to the form 5500 and as a result the client owes $49,500 + interest (see attached). What is this?

Just a simple clarification... A client with a 5 participant 401(k) plan asked about the mega backdoor roth option. I explained that every year we max out the plan to the 415 limit, there is no room for a voluntary after tax contribution. Can she convert the PS contribution to ROTH each year with an in-plan conversion?

Really? That's ridiculous. I assumed the agents in both audits were local. If we can't arrange a time that works I guess we will reach out to the supervisor. Thanks!

In the past 2 weeks 2 clients have received plan audit notices. Thankfully they are only PS plans, nothing more. But get this....I just received a call from the 2nd client who got the audit notice. He is in the hospital following a blind fall down the stairs in the dark in the middle of the night. He is in rehab with a concussion, 2 fractured vertebrae, and cracked ribs. Poor guy, he just retired last month! 80 years old! So he called the agent conducting the audit explained the situation and requested the audit be postponed and the agent said no! He said to give someone power of attorney. Is it unreasonable to request the audit be postponed? Is this normal that the IRS would not grant a postponement based on these circumstances?

A plan came to me asking what is the next step. They received an IRS notice with a penalty. A response was sent in April 2023. The IRS never responded and no follow up notices were ever received. Should the client assume the IRS closed the case? Should they call the IRS?

So in the end there is no such thing as a defer only plan. There could always be an instance where a THM is required. 3% at that. Brings up waiving out of the plan all together. If the girls waive out would I need to worry about THM?

Here is the situation.... EE1 = 100% Owner (HCE) EE2 & EE3 = daughters... HCEs by attribution? EE 4 ~ 6 = Employees who earn on average $500k+ (HCEs) Owner only wanted a defer only plan... didn't want to make any kind of employer contributions, no SH or PS. If daughters are HCEs due to attribution and don't defer then no ADP problem.

I understand that a participant can opt out of the plan . And that if they do they can not return. If a participant opts out, they no longer are part of plan testing.... correct? EDIT: I meant "Waive out" And Dang... meant to mention this.... This guy has 2 daughters. Would they be considered HCEs due to attribution? I'm guessing they are both older than 18. My thought was they may screw up testing so have them waive out... take them out of the equation. But if they are HCEs by attribution then no issue if they defer very little or nothing at all.

Thank you!

I think I did it. Here is what I did.... - Had to give it to all who deferred, even if they were not employed on the last day of the plan year (same as a regular ADP SH Match) - It was a "discretionary" ACP Match (SH) - It was a 100% match of whatever % I needed to eat up the $4300 overage (0.373%) I ran all my tests and came through with a Pass!

Thank you... I will explore the document. Appreciate your help! Learn something every day 🙂

This plan is a SH Match.

This is probably stupid but this client deposited $4,300 too much. They asked if they could allocate it as a PS contribution instead of returning it to the company. The plan is a straight SH Match, they don't make PS contributions (it's allowed, they just don't). Problem is, 5 participants who don't defer would receive the PS contribution. No big deal. But the plan has individual brokerage accounts at American Funds. Each of these 5 participants would need an account of which their balance would range from $125 to $236. Hardly worth it..agree? Could these 5 participants share one pooled account? Would it be best to just pay the overage back to the company? Thanks

My understanding is he has a Roth IRA. If he satisfies the 5 year rule in the plan and rolls the Roth money into an existing Roth IRA then he is all set. Honest, doesn't make sense to me a new clock would be started if he rolled Roth money out of a plan into a new Roth IRA... It's Roth already. Oh well. Knowing that he may close the plan soon (within 5 years) he would be better off taking a distribution and converting it to Roth outside the plan. Start the clock outside the plan so he doesn't have to re-start the clock. Make sense?

5 year rule - The Mega Roth scheme where a participant puts in a voluntary contribution and then converts to ROTH immediately starts a 5 year period. For this guy, because the money has been in the plan for more than 5 years already, when it converts to Roth will he have a 5 year rule attached to that money?

He's thinking the plan may close before the 5 years is up. May just be easier to keep the money outside the plan Thank you for the link.

A single member plan (62yo participant) wants to take a distribution from his plan, pay the taxes outside the plan and put the total rollover into a Roth IRA. Can that happen?

There was no PS contribution for 2023... no 415 issues to worry about. That is what we are going to do, allocate the (actually) $4100 to everyone pro-rata. Thanks!

Yup. so the $2700 has to be paid back to the business.... OR everyone can share in that $2700 as a PS contribution pro-rata.. won't be much but that is an option, right? Thanks!

This 401(k) plan was moving along very smoothly. Then I discovered that for the owner (who didn't defer this year) received a match contribution ... on nothing. The CPA told the bookkeeper to put $4500 in for him. Who knows what he was thinking. We have some true-ups for the other employees that we will eat up most of the $4500 but there is still a some left ($2700). To remedy this can the owner put in the $2700 as a Roth deferral which would me batches 100% because it is so small? Amend the W2? or is it too late?

I think this is a softball question and I'm sure I will be told to look at the document. A participant is 66. She is ceasing her deferrals and the match will be up to date. She will still be employed but wants to withdraw her full account and roll it into an IRA. The rules state (right from the IRS page) - > Generally, distributions of elective deferrals cannot be made until one of the following occurs: The participant dies, becomes disabled, or otherwise has a severance from employment. The plan terminates and no successor defined contribution plan is established or maintained by the employer. The participant reaches age 59½ or experiences a financial hardship. Same rules apply to the SH Match. So, sounds like she can take her $$... right?

That explains it! I so appreciate the help. Watch, after all of this finding out how to do this the client will decide not to (which is fine with me).

Got it... "After-tax" so when converted to the in-plan ROTH no taxes need to be remitted. Explain to me... If someone deposits an "after tax" voluntary contribution to a plan, does it need to be converted to Roth? Wait, did I just figure it out? Converting it starts the Roth clock?