Nondeductible Contributions

What happens to nondeductible contributions at plan termination?  We have a plan sponsor that has negative K-1 income and 2024 is their final plan year (12/31/2024 plan termination date).  They have a minimum required contribution and want to know what happens to this money at time of distribution.  For what it's worth, it's an owner only plan and presumably, the owners (50/50) will be rolling over their funds into an IRA.  I don't have any experience with nondeductible contributions at plan termination so am feeling a bit lost as the TPA.

From a plan perspective it doesn't change the characteristic of the funds in the Plan for participants. 

As for what happens to the nondeductible contribution that was not deductible because minimum required contribution was larger than self-employment income , I believe the excise tax is waived and you can carry forward the deduction to future years but I'm not a CPA and not 100% sure on how that works or what would need to be filed with the IRS and maintained by the client.

30 minutes ago, Lou S. said:

From a plan perspective it doesn't change the characteristic of the funds in the Plan for participants. 

As for what happens to the nondeductible contribution that was not deductible because minimum required contribution was larger than self-employment income , I believe the excise tax is waived and you can carry forward the deduction to future years but I'm not a CPA and not 100% sure on how that works or what would need to be filed with the IRS and maintained by the client.

 

Right my issue is the plan terminated effective 12/31/2024 and wants to distribute the funds to the IRA. They're asking what happens to those nondeductible contributions and I'm at a loss. I've only experienced nondeductible contributions that are carried forward to future years but haven't run into a plan termination situation.

You might check out this old thread that seems close to your fact pattern and look at the reg that is quoted in the last post, but it's an older posts and some cites may have changed. Treas. Reg. Section 1.404-3(a)