Author: Melissa Ruegg
Client Relationship Manager Supervisor
The first quarter of the year is a busy time for plan sponsors. Although the March 15th deadline is now in the rearview mirror, we shouldn’t take our foot off the gas. This post explores common questions that occur after the March 15th deadline and what to be aware of as we approach Q2.
Process the corrective distributions ASAP, no later than December 31st. Plan sponsors must pay a 10% excise tax on the amount of the refund and submit a Form 5330 to the IRS. The tax and form are due no later than 15 months following the close of the plan year. Your Goldleaf Partners Client Relationship Manager can assist with the preparation of Form 5330.
It is important to process corrective distributions prior to the end of year to limit the correction expense. If the refunds are not made by December 31st , the correction can become costly due to required additional contributions made to Non-Highly Compensated Employees (NHCEs).
Plan sponsors must process a corrective distribution of the excess amount plus earnings. This is considered taxable income for the year and needs to be removed from the plan and returned to the participant. If this is corrected in the same plan year in which the excess occurred, the excess is taxable for that plan year. If it is discovered after the end of the plan year, the deadline to remove the excess contribution is April 15th to avoid double taxation of the excess amount.
In the case that a participant changed jobs and the sum of their contributions at both employers exceeds the 402G limit, the participant must still take a corrective distribution. In this scenario, the distributing plan should obtain documentation to support the excess to ensure the correct amount is processed.
The 5500 deadline (without extension) is July 31st and will be here before you know it! Your TPA will begin preparing the 5500 filing for your plan. If you are considered a large plan filer (over 120 eligible participants) your plan will require an audit. Now is a good time to secure an auditor and begin preparing the items needed to make the process as smooth as possible. If needed, the 5500 deadline can be extended until October 15th.
The SECURE Act of 2019 adjusted the age for RMDs from 70.5 to 72. However, this only applies to those that turn 70.5 in 2020 or later. Generally, April 1, 2020 is the deadline for participants that turned 70.5 in 2019 to begin taking their RMD. However, in some cases, the plan document allows the delay of the RMD until termination from employment. Keep in mind, the April 1st deadline only applies for the first year a RMD is required. All subsequent years the RMD must be made by December 31st.