Basically

Nope... most of the money was deposited in 2022. Looking at each employee starting with the NHCEs - EE1 deferred 4.62% EE2 deferred 8.5% EE3 deferred 5.1% Does it work like this : The SH Match is 6% so EE1 and EE3 would be matched - Done. EE2 would receive a 6% SH match + a 2.5% company match The 2 owners each deferred 40%. They could receive the 6% SH match + 19% company match which would mean that we would need to return $10,250. I'm sure I'm missing something. Would that work, fix the problem?

Here is the skinny - Plan is a 6% SH Match, company match, (and I always make the ER a pro rata discretionary NEC) Owner A - $67K Comp, $27K Def Owner B - $67K Comp, $27K Def EE1 - $39.5K Comp, $1,825 Def EE2 - $8,525 Comp, $725 Def (Term during year) EE3 - $39K Comp, $2,000 Def Owners are husband and wife. The plan only matches deferrals and they wanted to match everyone's deferrals 100%. Obviously the owner misunderstood the Safe Harbor design and how it worked. But is there a way to make it work?

OMG some clients just don't get it. This guy is generous. He wants to match everyone's deferral dollar for dollar. But I don't think it will work. He only earns $67,000. He deferred $27,000 so he wants a match for himself equal to that $27,000. That doesn't work... does it? I've got so many numbers bouncing around in my head. What is the max that he can get? Flat out 25% of 67,000 or $16,750? Total deposit for him would be $43,750? Is there any way to get him what he wants? Thansk

Thank you. I appreciate your responses.

Can someone point me to how ROTH payouts are taxed? I know the 5 year rule but here is where I am unclear: Situation: Susan has been making ROTH deferrals since 2015. She makes ROTH deferrals every year. The last 7 years she has amassed $100K+ (deferrals and earnings) Susan is over 59-1/2 and would like to take a distribution. Key Points: Susan opened the ROTH account over 5 years ago ... ✔️ Susan is older than 59-1/2... ✔️ So - Is the only rule that the ROTH begin date of the account be 5 years or older? Does it matter that some of her ROTH deferrals are less than 5 years old? Would Susan's distribution (which includes contributions and earnings) be tax free? As you know, a client comes to you telling you how it will be taxed. I just want to be sure. When she dies, with the Roth account non-zero, what is the taxation to her beneficiary? Thanks

Will do Mr. Rigby. Thanks And I did look up successor plan rules. This sponsor is older than 59-1/2. IDK what her thoughts are. I'll ask questions!

She already has been filing a form 5500, and that brought up another question I am always weary about - Regardless of whether a plan dips below the $250k mark because the assets just aren't worth as much or due to a distribution, is a 5500-EZ required to be filed? I'm of the mind to tell her to just terminate the plan and if in a couple of year she wants to open another one just do it. Is there any reason she can't do that? I mean, does the plan need to be gone for a certain number of years before she can open another one?

A single member plan (Solo) wants to roll out the balance of her plan into an IRA. She is not closing down her business, but she is ceasing her contributions to the plan. She would like to keep the plan around in case she decides to make a contribution at a future date. I know that a plan that does not receive a contribution for 3-5 years means that everyone is 100% vested. Not an issue here with this plan being a single member plan. But can she do this? Empty the plan out and keep it around with a small balance, $1,000 or so? Thanks

Bill, I was of the thinking it could but simply overthought it. Appreciate both of your responses!

Bob the doctor has a plan. He and his wife are divorcing. She gets a payout ordered by a QDRO. Can her payout be rolled into her own plan? (she sponsors a single member plan of her own). Thanks

That's how I've always done it. In the IRS' example for someone who does not have a vested balance that would allow them to take a $50K loan, the 2nd loan amount doesn't make sense to me. I would think you take the most that the participant can borrow and use that figure instead of the $50K figure. Honest, I'm not going to worry about it. It's just nice to throw an IRS link at the financial advisor backing up what you tell them. Thanks for responding.

My client has a plan balance much greater than $100K. So using the example above he would only be eligible for a second loan equal to $23,000. That would be what I tell him. But please explain your comment... In the IRS example Jim only has a $80k vested balance so he can take a $40K loan ... but you are saying for his second loan we don't use $40K we use the maximum $50K?

A client want's to take a second loan. I looked at the IRS' explanation and it is not how I have been calculating 2nd loans. In the end I have been more strict (it appears). Am I wrong? Here is the link to the IRS' example IRS Example / My comments in blue Jim’s vested account balance is $80,000. He borrowed $27,000 eight months ago and still owes $18,000 on that loan. Jim wants to take a 2nd loan. What can he borrow? Maximum second loan if amount still owed on first loan Jim’s current loan balance is $18,000. This amount plus the new loan cannot exceed the lesser of: $50,000 – ($27,000 - $18,000) = $41,000, or $80,000 x 1/2 = $40,000 Jim’s total permissible balance is $40,000, of which $18,000 is an existing loan balance. This leaves a new maximum permissible loan amount of $22,000 ($40,000 - $18,000). I always said that you take the vested balance to find the maximum loan amount for the 1st loan. If a 2nd loan is requested regardless of whether the 1st is paid off or not, this is how you calculate the maximum allowed: First, determine what the maximum loan amount can be right now Next, If the participant has an existing loan (or had a loan in the past 12 months), look to see what the highest balance of that loan was and subtract it from what the participant's could borrow now had s/he never had a loan THAT is what they can borrow. Using the IRS' example I would say that Jim could only borrow $13,000 ($40,000 maximum allowable less highest outstanding balance in the past 12 months or $27,000..... 40,000 - 27,000 = 13,000), not $22,000 It's a big difference. The IRS' example is more beneficial. Have I been wrong all these years?

I am not knowledgeable with regards to the investment question I was asked. The client wants to invest in some type fund which has a US investment side and an offshore investment side. The fund recommended offshore due to tax reasons... UBTI. No UBTI if it is foreign? Anyone follow me? I'll try and get more info. https://benefitslink.com/boards/index.php?/topic/28629-offshore-investments/&do=findComment&comment=114865

Here is the scenario, Single member plan. Owner took a loan, then COVID hit and business fell off (non-existent). The loan was suspended and ultimately the business failed. To close the plan the owner needs to understand how to calculate the defaulted loan balance. What is the process. Should interest be added? Just use the last principal balance? Thanks

I hate when I am asked this question. A participant wants to take a distribution. He is only 58 so he will be hit with a pre-mature dist penalty (1099-R code premature). But simple question... if the doc allows for in-service distributions is there any reason he can't?

A Dr. has a plan. He is a sole member entity. He took a position with a larger medical practice starting Jan 1, 2023. He fully funded his plan for 2022. There is no reason we need to keep the plan open past 12/31/2022, right? The 2022 contribution money is in and now want's to roll everything out and into an IRA to close the plan before the year end so he doesn't have a 2023 administration. No problem right? - Roll everything out into the IRA - Generate a 1099-R for the rollover - File a final form 5500-EZ for 2022 Thanks (There is so much good info to learn when you start clicking on posts in all message board areas! I find myself getting into topics that I did not intend to and before you know it you have forgotten why you are here)

That's great, thank you.

So this comes down to ownership attribution. And in my situation, when Mr. and Mrs. Smith (who are owners) hire Bobby Smith (son), he is also an HCE due to attribution. That would be great news because I can press again that a 401(k) is the way to go due to there being no NHCEs (because they just want to defer, or make a nominal match like a Simple). I can frame it to them that a NEC could be totally discretionary. Can't get any more flexible. For my own knowledge, ownership attribution doesn't go up, a parent of an owner who works for the business wouldn't be attributed ownership because their child was an owner of the sponsoring business. The parent would just be an employee. I knew this. I tell Solo clients that it was just a way to sell small plans to individual consultant type businesses.

But if a child was hired (is an employee) then there would be a NHCE. The child was thrown into the mix last Friday, not part of the original scenario. Oh wait, this is new to me. What difference does the entity type make? Is it ff the entity is an S-corp and there were owners and a child, the child would be deemed to own the stock of the owners therefore making them an owner?

DANG! The advisor is back on the Simple 401(k) plan. I guess a child of the owner will be an employee. I am still going to do my best to convince them the Simple might not be the best option. Just want to get my facts straight. I appreciate everyone's help. So if they go Simple 401(k): Because it is a Simple 401(k) they will need to complete a 5500, correct? and because there will be an employee other than owners, a 5500-SF? Same 5500 rules as a qualified 401(k)? It will be a Simple 401(k) so no employer non-elective contributions, just the Simple match or Simple NEC, correct? Because just the Simple match or Simple NEC there is no testing. It's like a SH plan. Appreciate it.

Wow, thanks for all the priceless advice. Yes I am no attorney and Yes I certainly do not want to be mixed up in a mess and potentially liable. I did pass along the fact that a QDRO is required. I did point out that otherwise there is no distributable event. I was thanked and now await whatever comes next.

You both are correct. I tend to want to help out too much. I'll pass along that a QDRO is needed otherwise there isn't a distributable event. Thanks for the sound advice.

Ok so you are pointing out that the QDRO is required, that without a QDRO there is not a "distributable event". Looking at a QDRO that I received for a different plan makes me think. Is there a boiler plate QDRO, a fill in the blank template? Could that be used by the soon to be divorced couple and submitted to the court, signed by both parties in front of the court, then signed and ordered by the court and then time stamped by the court. Make it all official? If you didn't catch on, they are trying to save some $

Got a call from a client. He and his spouse are getting a divorce. It is amicable so he intends to give 1/2 of his plan balance to her, no problem. They don't want to pay for the attorney to draft a QDRO. Couple of questions: Do they need to wait until the divorce is final to complete the distribution? Probably, just in case they reconcile because then the payout would have been premature. Do they need a QDRO? The distribution election form is asking for the QDRO checklist. Just maybe have them create a statement stating that the account is being split due to a divorce and have them both sign it in front of a notary? Thanks