ineligible solo 401k

[Pixie]

Owner of 3 companies (only one with employees) starts up a solo 401k in 2023 and doesn't make any funding until 2024.  the funding isn't permitted because the employer has 40 staff in another company he owns.  What is the correction method for this?  Can this be withdrawan as a mistake of face? This owner is not taking a deduction for the solo funding for his 2023 taxes.

[Bri]

Do the other companies have existing 401(k) plans?

 

[Lou S.]

Assuming this is a controlled group, if the other companies have a 401(k), do aggregate testing. You'll probably fail and need refunds but hopeful you are not top-heavy.

If the staffing firm doesn't have a 401(k), the correction is to cover the the other entities. Make a QNEC for missed deferral opportunity. Then correct the ADP failure (assuming there is one) either by refund or QNEC. Then make any additional contribution required top-heavy minimum since it sounds like the only contribution is the owner's 401(k).

Possibly requiring VCP if not eligible for self correction to have the staffing firm adopt.

The Plan wasn't ineligible,it just sounds like it fails coverage.

 

[Bri]

"By the way, a lady in a bar told me I had a mistake of face once.  No respect!"

[Bri]

I'm wondering if there's a way to claim MDO as 0% for the NHCEs and just take it all back as an ADP test failure.

[Lou S.]

It's a stretch but it might work. If no contributions at all were made for 2023 then the TH determination date for 2023 and 2024 would be 12/31/2023 and not TH for 23 or 24.

terminate the plan for 24 and refund 100% deferral as failed ADP (unless some could be recharterized as catch-up?) assuming no employer money and deferral only so far.

Don't know if that would work or not.

[rocknrolls2]

when I started work in this area, the rule was that if no contribution was made by the due date of the corporate tax return plus extensions, there was no valid trust and therefore no plan byoperation of law. The IRS approved of that position. In spite of all the legislative and regulatory changes made since then, I am not aware of anything that would have changed this principle. Since there is no plan ortrust in existence, there is nothing to correct. That employer should simply adopt the 401(k) plan of one of its affiliates.

[RatherBeGolfing]

On 9/12/2024 at 3:45 PM, Lou S. said:

The Plan wasn't ineligible,it just sounds like it fails coverage.

 

This.

[Pixie]

On 9/12/2024 at 1:09 PM, Bri said:

Do the other companies have existing 401(k) plans?

 

There are no other retirement plans.  Basically the business owner and his wife put in $73,500 each on the advice of their former CPA.  This is not my client.  Should I refer them to an ERISA atty?  I am just trying to help out their current CPA who noticed the error.  There were no deductions for these contributions made for them on the 2023 taxes/business returns.