Congratulations on your decision to keep your plan in compliance with the IRS!
If you do not keep your plan up to date, the IRS will typically consider it disqualified. If the IRS considers your plan disqualified.
Plan Trust Owes Income Taxes on the Trust Earnings
A plan’s tax-exempt trust is a separate legal entity. When a retirement plan is disqualified, the plan’s trust loses its tax-exempt status and must file Form 1041, and pay income tax on trust earnings.
Rollovers are Disallowed
A distribution from a plan that has been disqualified is not an eligible rollover distribution and can’t be rolled over to either another eligible retirement plan or to an IRA rollover account. When a disqualified plan distributes benefits, they are subject to taxation.
Contributions are taxable
Contributions are taxable and Subject to Social Security, Medicare and Federal Unemployment (FUTA) Taxes