Message Boards Digest

March 22, 2022

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

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

IRA Distribution -- 1099-R Coded as 5 ('Prohibited Transaction')

"I have an IRA which was entirely funded with embezzled funds. The employee embezzled funds from the employer into the employer's 401(k). The 401(k) distributed the account into an IRA. The IRA was distributed to the account owner. (The embezzlement information did not come to light until after these events.)

I am thinking the appropriate code for the 1099-R distribution from the IRA is code 5 ('Prohibited Transaction') because the account was funded by the employee who embezzled funds. The gross distribution would be the amount distributed, and the taxable amount would be the earnings on the distributed funds. My thoughts are that it would be the closest explanation as to why taxes and penalty taxes are not being withheld. What do you think?"

2 replies so far   |    Click Here to Add a Reply
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austin3515 created a topic in Correction of Plan Defects

SCP Corrections OK If Not Specifially Listed in EPCRS?

"Let's say there is a problem with a 401k plan and we come up with a fair correction method not listed in EPCRS. Is it automatically ineligible for SCP treatmnt out of hand because it's not listed?

Or if we went with this outside-the-box-correction, is the correction acceptable assuming an IRS auditor thinks it was reasonable and justified?

I don't want this question to be distracted by a particular fact pattern. My question really is just, is there flexibility for SCP corrections not specifically delineated (in my case the issue is that the fact pattern is not listed in EPCRS)?

I completely understand that there would always be risk under audit that the auditor could find fault. This correction involves 1 person and is therefore not remotely in the zone for a costly VCP filing."

2 replies so far   |    Click Here to Add a Reply

Jakyasar created a topic in Retirement Plans in General

Can Inherited IRA Be Rolled Into a Profit Sharing Plan?

"I inherited an IRA from my parent. Can I roll over this IRA into my profit sharing plan?"

3 replies so far   |    Click Here to Add a Reply

Jakyasar created a topic in Retirement Plans in General

Can an Already-Filed 2021 Tax Return Be Amended to Accommodate a New Plan?

"A one-person employer has a 401k plan. For 2021, he's already put in max deferral and PS. Also filed the corporate tax return before 3/15/2022. Now he wants to set up a DB plan for 2021 but take the deduction in 2022. (Given the level of 2021 salary, the 31% rule will yield only $9k of DB maximum for 2021 but 2022 will have a high enough cushion to have 2021 and 2022 deduction.) If the corporate return is filed without any extension, is it too late to amend for 2021 and have a low DB deduction as well as adjusting any other deductions? If it had been filed with an extension, can he go back and redo the deductions (2022 will be an issue as well but easier to deal with)?"

3 replies so far   |    Click Here to Add a Reply

Belgarath created a topic in Retirement Plans in General

Coverage Testing -- Terminated Participant Has Zero Hours But Has Post-Severance Comp

"PS plan has no allocation requirements for contribution. Participant terminates in December of 2020, has eligible post-severance comp the next year (2021) so receives 2021 allocation, but has zero hours.

Would you include in coverage testing for 2021, or toss out? I'd include because I don't see how this meets the 410(b) requirements for the terminated-with-less-than-500-hour exclusion."

4 replies so far   |    Click Here to Add a Reply

401 Chaos created a topic in 401(k) Plans

Profit Sharing Contributions Exceeding Annual Additions Limit Across Multiple Employers

"Am I correct in my understanding that the annual additions limit is a 'per employer' limit such that an individual may receive contributions up to the annual additions limits in two different plans of two different, unrelated employers in the same year? If so, does that change if the individual is a partner in two partnerships and so is self-employed?

Situation involves a lawyer who was a partner in Law Firm 1 for 3/4 of 2021 and had enough income there to receive a profit sharing contribution and 401(k) deferrals equal to the 2021 annual addition limit under the terms of Law Firm 1's plan. Lawyer then moved to a second, unrelated law firm and had significant compensation there. Not enough comp to receive full profit sharing under Law Firm 2's profit sharing plan but still a significant profit sharing contribution. Now wants to receive profit sharing contributions across both plans.

Lawyer realizes the 401(k) elective deferral limit is per individual and so is capped across both plans (did not participate in 401(k) at Law Firm 2) but is there any similar concern with the profit sharing contributions being capped, or can she receive all the Law Firm 2 profit sharing to which she is entitled even though already hit the annual additions limit at Law Firm 1?"

2 replies so far   |    Click Here to Add a Reply

BG5150 created a topic in 401(k) Plans

Deferrals Start 7/1, Plan Year Is Full Year -- How to Calculate Matching Contributions?

"Plan is effective 1/1/21, but deferrals are effective 7/1/21. Per the doc, match is calculated on a plan year basis. Do we calculate the match using all the comp, or just the comp after 7/1?"

1 reply so far   |    Click Here to Add a Reply

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