401/PS was contributed into the DB plan and more mess

[Jakyasar]

Hi

Never a dull moment with pensions.

Sole prop, has DB and 401k/PS plans.

2022 401k/PS (first year) was deposited into the DB account in October (just found out).

DB is terminated 11/30/2023 and all was rolled over into an IRA including the 401k/PS portion (the plan is still active).

To add more fun, when DB was rolled over, the RMD was calculated on the full amount i.e. RMD was calculated incorrectly (however RMD included the portion attributable to 401k/PS portion.

So, how does one correct all this? Such a mess, they did not even tell me all this even though I was very specific when deposits were going to be made.

Anyone has experience with this mess?

Thanks

[Lou S.]

Not quite to this extent but I have had clients deposit to the wrong account in the past. We had them transfer the amount plus earnings to the correct plan account as soon as discovered and had them document the error in case of IRS audit. It's probably not the technical correct answer but it's what we did and it was years ago.

The additional problem of plan termination and subsequent rollover I have not had to deal with.

Could you self correct by having the individual do a "retro-active" distribution from the 401(k) plan to the IRA if in-service allowed? Your 1099-R by plan won't match up but the total amounts that were taxable as RMD and non-taxable rollover to IRA should all match with what happened.

Maybe not the best solution but it seems like it would put the participant in the same position as if the error did not occur. I mean you still have the issue of deposits going to the wrong accounts but from a tax standpoint the participant should still be where he's supposed to be.

Not sure if this is something that would fall under the new expanded SCP or would require VCP if you want IRS blessing on the fix.

 

[Jakyasar]

I wanted to follow up on this and see if anyone has come across something similar.

[Gina Alsdorf]

I have seen something like this only with annuity contracts where the individual went through VCP to untangle. I think it's was hard to undo what was done but they did the best they could and the IRS blessed it.