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Message Boards Digest

September 22, 2020

Here are the most recently added topics on the BenefitsLink Message Boards:

Oldtpa created a topic in IRAs and Roth IRAs

ROTH Conversions and CRD's

"Haven't been able to find an answer to this question anywhere: A 50 year old client has a ROTH IRA that only has the funds that were converted from a traditional IRA (including earnings) a year ago. The owner wants to take a distribution (no earnings) and he would owe 10% early withdrawal penalty for breaking the 5 year rule on conversion funds. No problem here, however, he meets the qualifications for a covid-19 distribution which are not subject to the 10% early withdrawal penalty. Would this exemption for a CRD override the 10% early withdrawal penalty for breaking the 5 year rule? I've been unable to find any clarification on this. Anyone have any thoughts or cites on this? Thanks"
0 replies   |    22 views   |    Add Reply

DJL created a topic in Distributions and Loans, Other than QDROs

CARES Act and Loan Offset

"Good afternoon. Just when I think I understand the CARES Act . . . I cannot find a thread that discusses a loan offset under the following situation, though I was sure I had read one. Please advise me of the thread if one already exists.
  • The participant had an outstanding loan and was up-to-date with his loan repayments at March 27, 2020.
  • The Plan implemented the CRD and CARES Act loan provisions. Loan repayments were suspended until January 1, 2021, at which time they are re-amortized and resumed.
  • The participant is a qualified individual and stopped making loan payments when the Plan offered the loan suspension.
  • The Plan permits participants to continue making loan repayments after termination of employment.
  • The Plan provides that a loan is in default if payment is not made the end of the maximum cure period
  • On June 1, 2020, the participant, while still a qualified individual, terminated employment and took a CRD of all his vested account, except for the outstanding loan.
When does his outstanding loan become a loan offset:
  • June 1, 2020, when he took the CRD distribution?
No--because the Plan permits him to continue making loan repayments after termination of employment. And, the IRS has suspended loan repayments until July 15, 2020. OR Yes--because he took distribution. He can treat the entire amount, including the loan offset, as a CRD distribution. (The sum of the CRD and loan offset are less than $100,000.)
  • July 15, 2020, when he failed to resume loan repayments?
No, because he is a qualified individual and has until January 1, 2021 to resume loan repayments. OR Yes, because he had 30 days after termination of employment to repay the loan and he did not. He can treat the entire amount, including the loan offset, as a CRD distribution.
  • January 1, 2021 if he fails to resume loan repayments?
If so, this cannot be treated as a CRD because it occurs after December 31, 2020. Thanks for your help."
0 replies   |    22 views   |    Add Reply

jgerardy created a topic in 401(k) Plans

401k vs. Keogh

"Is a sole-proprietorship or partnership who wants to establish a 401(k) considered a Keogh plan? My understanding is there is no longer a distinction as they are now qualified plans that include a self-employed individual. If that is the case, I would like to confirm that SEC rule 144A does not apply then to restrictions regarding the use of CIT's for these plans."
0 replies   |    28 views   |    Add Reply

22su created a topic in Form 5500

Wrong EIN on 5558

"Hi. Company started 3 new welfare plans effective 1/1/2019. Extensions were filed timely, but it was just discovered that the wrong sponsor/EIN was used on all three. The Sponsor/EIN of our existing plan (501) was copied over and not corrected when the extensions were filed. The correct plan numbers were used on the extensions (502/503/504). I am ready to file the 5500SFs, but unsure how to fix this error. Should I go ahead and file with the wrong EIN and then amend with the correct EIN? Or should I file with the correct EIN and wait for the late filing letter? I hesitate to use line 4 since there are no previous returns/reports filed. Other options? Thank you!"

2 replies   |    17 views   |    Add Reply

Chipwood 24 created a topic in Defined Benefit Plans, Including Cash Balance

adding a Cash Balance before a Stock Sale

"Dr Doogie Howser (age 47) and Dr John Trapper (age 51) are eye doctors who both own 50% each of Lazy Eye, Inc (an S-Corp). They have 7 employees and don't own any other businesses. They currently in 2020 sponsor a 401(k) Safe Harbor with a Basic Match. In 2021, they will be selling their business (it's a stock sale) to another entity and the expected proceeds from the sale will be $5 Million. The doctors are expected to stay on as employees for the forseeable future. They want to add a Cash Balance (CB) for 2020 (before the stock sale), so that will be Year 1 of the CB. For 2021, they will amend the Safe Harbor 401(k) to the 3% Non-Elective and it will be year 2 of the CB. In 2021, they expect the Stock Sale to go through. They would like to take advantage of the transition rule under 410(b)(6)(C) for the 401(k) and to let the CB run through 2021 and 2022. At the end of 2022, they would like to terminate the CB. Of course, in the negotiations, the Buyer would most likely have to agree to all of this and it would most likely effect the $5 Million purchase price of the business. For example, lets say it's sold for $4.2 Million instead. By doing this, the doctors would be able to shelter some money away and not have to pay taxes right away on the sale of the business. What challenges or issues do you see with this strategy of adding the CB (assuming the Buyers are ok with this format)? In regards to the CB, do you think the IRS would disapprove of it being used in this fashion? This seems like a great strategy and way to take advantage of the transition rule. Am I missing something?"
1 reply   |    30 views   |    Add Reply

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