plan but no employer

[Earl]

Random employee of a big company walks into a brokerage company, opens a 401k plan and puts in a contribution for 2015. No SE income, just W-2 from big co.

408d 4 & 5 provide solution for SEP-IRA. Is there something similar for qualified plan?

Brokerage company is telling him he can't take it out.

I am trying to avoid calling it a 415 violation or some such. I want to say there was never a plan and just kick out the money and close the account.

Money has never been deducted, 2015 taxes are not filed yet.

Thanks for any ideas

[BG5150]

What does "open up a 401(k) plan" mean? Did he complete plan documents and open a trust account? Or just open up an account he told the broker was a "401(k) account"?

Does his company have a plan and allows SDB accounts?

What kind of shady or professionally derelict brokerage office would open up such an account on the say-so of a guy coming in off the street? (Or even just on the say-so of a current client?)

[Lou S.]

Random guy off street - Can I haz 401k?

Broker - Sure deposit money here

Random guy off street - Can I haz my money back

Broker - No

Have you asked the brokerage company for a copy of the plan document they used to open the account?

[Earl]

I have the document. Relevant section seems to me to be:

F. Return of the Employer Contribution to the Employer Under Special
Circumstances—Any contribution made by the Employer because of a
mistake of fact must be returned to the Employer within one year of the
contribution.

In the event that the Commissioner of Internal Revenue determines that
the Plan is not initially qualified under the Code, any contributions made
incident to that initial qualification by the Employer must be returned to
the Employer within one year after the date the initial qualification is
denied, but only if the application for qualification is made by the time
prescribed by law for filing the Employer’s return for the taxable year in
which the Plan is adopted, or such later date as the Secretary of the
Treasury may prescribe.

In the event that a contribution made by the Employer under this Plan is
conditioned on deductibility and is not deductible under Code Section 404,
the contribution, to the extent of the amount disallowed, must be returned
to the Employer within one year after the deduction is disallowed.

• No DL was filed so "in the event the Commissioner" seem out.
• I am not sure what "conditioned on deductibility" means. There would be a plan provision specifying this? I don't see one. Would it be something else administratively?

Thanks for your time.

[Lou S.]

Did the guys sign the plan document on behalf of large company? Because he likely has no authority to execute a plan document meaning there is no valid document to begin with, with or without an IRS DL submission.

[My 2 cents]

Random guy off street - Can I haz 401k?

Broker - Sure deposit money here

Random guy off street - Can I haz my money back

Broker - No

Have you asked the brokerage company for a copy of the plan document they used to open the account?

I am going to guess that this scenario is violating some kind of law. Don't brokerage companies have to verify the identity of the depositor to make sure it is neither a money laundering scheme nor a means to finance terrorism? By the way, can't read this scenario without laughing.

Earl said: I have the document. Relevant section seems to me to be...

Just wondering what document that is. The 401(k) document of the person's employer's plan, a 401(k) prototype document that any person can wander in off the street and adopt, something else? I thought the whole point here was that the depositor was not able to fulfill the role of being the plan sponsor since he is only someone else's employee. Why, given the facts as shown in the original post, are we not talking about issues that arose when the broker (assuming a minimum degree of competence) steered the person into an IRA?

[Earl]

He signed it for himself as a "sole proprietor." But he has no SE income and not even soliciting for business as a sole prop. Just an employee of some company.

It is almost like the 403b eligible employer problem, but not. Clearly the documents are not valid. Contributions were not valid and never deducted.

I have a work around to get the money out but just wondering if I am on firm ground.

[ESOP Guy]

He signed it for himself as a "sole proprietor." But he has no SE income and not even soliciting for business as a sole prop. Just an employee of some company.

It is almost like the 403b eligible employer problem, but not. Clearly the documents are not valid. Contributions were not valid and never deducted.

I have a work around to get the money out but just wondering if I am on firm ground.

I don't see a valid plan. He isn't a sole proprietor if nothing else. Put the burden on the broker to show why there is a valid plan in light of the evidence to the contrary.

[ESOP Guy]

This one might win the weirdest of 2016 award!.

[Earl]

The document was handed to him at the counter when he walked in off the street. It is not related to his employer's plan.

The issue is authority to distribute the money. Wondering why brokerage is saying "no." (The person saying no is not working the counter and handing out free documents.)

[Lou S.]

Well I guess you could argue he is a sole proprietor with $0 income and has a 415© limit of $0 which he has exceeded with the deposit of $X dollars used to open the account.

[RatherBeGolfing]

Random guy off street - Can I haz 401k?

Broker - Sure deposit money here

Random guy off street - Can I haz my money back

Broker - No

This made my day. Probably shouldn't have laughed as hard as I did since it is a serious problem, but damn that was funny!

Now quick, somebody make a meme with kittens asking "can I haz 401k?"

[BG5150]

If there is no valid company (of which he purports to be sole prop), then there is no valid employer. Hence, no valid plan.

[Bill Presson]

I think it's funny that they determined he had the authority to open the illegal account and deposit the illegal money but doesn't have the authority to distribute the illegal money because that would be illegal.

[My 2 cents]

This didn't happen at that well-known financial company that has been in the news so much lately, did it?

[Earl]

it was Chuck's company.

[jpod]

You may be able to get the money paid out but will they withhold 20% and/or issue a 1099-R?

[Earl]

I have a work around for that. Move to a custody only account and where I do the reporting!

So essentially I know what to do and how to do it but I am wondering if there is "permission" in the regs to just make everything right. (or am I supposed to do something stupid like file under VCP.)

[BG5150]

Out of curiosity, why "kind" of contribution was this supposed to be?

Deferral?

PS?

Rollover?

If it was PS, he can amend the plan to allow for distributions of employer money at any time. (Wait, does a seasoning rule have to apply? Or is that optional?)

[Bird]

If it was PS, he can amend the plan to allow for distributions of employer money at any time. (Wait, does a seasoning rule have to apply? Or is that optional?)

You don't want to do that and make money that was never deducted taxable.

It's a case where you just have to keep moving up the chain until you find someone who understands the situation. The best route IMO is to say the "plan" never existed b/c there was no sponsor. I assume they used the guy's SSN...that's a tiny flag in a sea of red flags showing that not only was the guy a moron, but that the brokerage firm was at fault as well for not insisting he get his own EIN if he in fact was a sole proprietor. When you show them they are at fault they should pay more attention.

[jpod]

I agree with the "no plan" theory 100%. By the same token, he should be picking up on his own 1040 any earnings since the money was first invested (interest, dividends, capital gains distributions, etc.)

[hr for me]

I am sorry about the situation, but grateful for the giggle...it's been a tough few weeks and just imagining "can I haz 401k?" cat meme gives me a giggle. I am truly grateful! (and do think this should count as weirdest of 2016 so far!)

[Earl]

I am quite sure the contribution was to be 401k.

Most def, the gain is taxable to the guy.

Most def, can't have in-service distribution if there is no service to the sponsor to begin with.

Thanks all for the thoughts on this.

[K2retire]

I am quite sure the contribution was to be 401k.

Most def, the gain is taxable to the guy.

Most def, can't have in-service distribution if there is no service to the sponsor to begin with.

Thanks all for the thoughts on this.

If no SE income, there can be no deferral!

[Earl]

Or any other type of DC contribution. And yet there is a deposit.

[Bill Presson]

Any chance they will just re-register the account as personal investments? They may be more willing to do that since they'll keep the assets.

[Earl]

I think my work around will be the easiest process.

Again, mechanically I have no problems.

I think my real worry is if this should be submitted for some reason. I don't think so but wondered.

[Lou S.]

I think my work around will be the easiest process.

Again, mechanically I have no problems.

I think my real worry is if this should be submitted for some reason. I don't think so but wondered.

What is the worst that happens if they "disqualify" the plan? Disallow the deduction that wasn't taken and income on the trust assets that he's already picked up?

Do you have a 5500 filing requirement? And if you don't file is there a penalty?

I mean it's a really odd set of facts.

[Earl]

That's interesting. But how do you file when there is no Plan Sponsor.

I think my position will be just because you sign a Plan Document doesn't mean you have created a plan.

Pretend there is a sponsor? And then sign, subject to perjury, that it is true, correct and complete?

I think the rule about when you "find yourself digging yourself into a hole, stop digging" applies.