Cash Balance Plan / 401k Contribution Wrong Account
Hello-
Client (business filed on Schedule C) set up a new 401k plan (separate EIN) and new Cash Balance Plan (separate EIN). They set up the plans with a third party and created the accounts at the custodian.
They made the cash balance contribution and 401k contribution for 2021 in calendar year 2022. Contributions were properly reported on filed tax return and other filings. No contributions for 2022 have been made yet.
The contributions were made to the “wrong” accounts though. The Cash Balance Contribution of $300K was added to the account at the custodian that had the EIN for the 401k and vice versa.
TPA says it is not a large issue just move the funds from one account to the other.
Any thoughts on best action? Possible penalties? Timeline?
Thank you!
Permalink Submitted by IRAQuestion5 on Wed, 2022-09-14 22:25
Per the TPA the EIN and name at the custodian are just for them and they do no reporting to the IRS. That is done by the TPA so it isn’t an issue. Thoughts?
Permalink Submitted by Alan - IRA critic on Wed, 2022-09-14 23:04
The 401k administrator must issue a 1099R for any distribution from the plan. I assume the excess amount contributed was to the 401k. There is an EPCRS procedure noted in the 1099R Inst that funds returned to the employer with allocated gain or loss and with participant’s consent would be reported in Box 1 with zero in 2a (not taxable). Code E (EPCRS distribution) goes in Box 7. Client could then add the returned funds to the cash balance plan.