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URL:  https://boards.fool.com/quotyou-honestly-think-the-irs-would-disqualify-34202053.aspx

Subject:  Re: Traditional & Roth Max Contributions Q Date:  5/8/2019  7:46 AM
Author:  mjolah Number:  26245 of 26270

"You honestly think the IRS would disqualify an entire 401(k) plan for failing to make a corrective distribution for an excess contribution it couldn't possibly have known about in the time allotted given the current rules?! Sir, you live in a seriously crazy, messed up world."

Yes. And I've seen it happen for less egregious violations. The norm would be to disqualify and impose tax consequences to teh HCEs. But in my experience (especially with small to mid-sized employers) is that if the IRS does that, the employer just terminates the plan entirely - eliminating the headaches - which has consequences to ALL employees.

"I doubt that too. If I'm wrong, I could just claim it was a mistake. Even if it's just a misunderstanding of how things work, it's still a mistake. But I don't think I misunderstand."

OK. Well, first, that makes you a dishonest person. It probably would manifest itself elsewhere. Second, if you happened to search on work computers for what we discuss, you'd be proven a liar (and most employers can, and some do, check such things). Third, go back to my first point. What kind of person do you want to be?

"The law is just a set of rules. I always recommend following the rules. But I couldn't give a … about what you or anyone else thinks the intent of a law is. That is just an opinion and is completely irrelevant if I'm following the rules as they are written. A plain reading of the law by the affected party always trumps any re-interpretation."

So what part of the "law" are you referring to? The STATUTORY law PROHIBITS exceeding the 402(g) limit. PLAIN READING - NOT ALLOWED. The IRS "regulations" indicate ways to fix it, if a violation exists. The regulations are but "guidelines" but the STATUTE is the "LAW." When in doubt, follow the LAW. And by the way, there is a SCOTUS case from 1969 (O'Neill was commissioner of the IRS - search for it). An attorney I worked with argued that case on behalf of a client of the firm I worked for. He successfully argued that the IRS' interpretation of the LAW (the statute) is but ONE interpretation of the law, and not necessarily the correct one. In that case, the regs prohibited a client from doing what they wanted to do, under the STATUTE, and the SCOTUS agreed with him (the attorney was Dean Hopkins). The principle works the other way to. If the IRS allows something the LAW doesn't - it would be a good idea to still follow the LAW.

In any event. Lying, gaming the system, playing fast and loose with the "guidance" is just not the way I run my practice, nor is it the kind of person I want to be.
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