Can I set up a Solo 401k bank account at an international bank?
Answer:
Yes, the Solo 401k trust can have a bank account at an international bank.
Dmitriy Fomichenko
About Dmitriy Fomichenko
Posts by Dmitriy Fomichenko:
What happens when my spouse stops working for my business?
Answer:
If you and your spouse work in your business together and your spouse stops working in the business, (s)he can still participate in the plan in terms of directing their existing assets in the plan. Your spouse has all the rights of the participant except the ability to make contributions into the plan.
Your spouse does not need to transfer their funds out of the plan and stop being a participant. However, (s)he can not make contributions.
Can my wife transfer her 401k from a former employer to my Solo 401k plan?
Answer:
No, she cannot rollover her retirement funds into your account. All retirement accounts are individual and tied to a Social Security Number, so she would not be able to rollover her IRA or 401k into your individual account. (The only exception would be upon death).
However, your wife can participate in your Solo 401k if she is also employed by the business. If she participates in the Solo 401k, she can have her own participant account. She can then rollover her IRA or 401k into her own account under the same Solo 401k plan.
Loan interest payments as tax deductions
When repaying the Participant Loan, can the interest portion of the payments be used for tax deductions?
Answer:
No, I don't believe that interest payments on the participant loan can be deducted on your tax return, unless the loan is used to purchase a primary residence. We are not qualified to provide tax advice and recommend that you consult with your CPA or tax advisor regarding this question.
Withholding 20% Tax on Distribution
I would like to take a distribution from my Solo 401k plan. How do I withhold and report the taxes to the IRS?
Answer:
As the plan administrator, it is your responsibility to withhold the taxes and report the distribution
You will need to do the following:
1. Withhold the taxes and remit them using the Electronic Federal Tax Payment System (EFTPS) method
The EFTPS is a free service provided by the US Department of Treasury:
EFTPS: The Electronic Federal Tax Payment System
- Enroll in the EFTPS system at: www.eftps.gov
- Sign up and then make all your withholdings in the quarter in which you make a distribution. Taxes must be paid electronically.
- Enroll as a "business" and use the name and EIN of the 401k
- For your records, an Electronic Funds Transfer (EFT) Trace Number will be provided with each successful payment. The number can be used as a receipt or to trace the payment.
- The taxes must be paid by the 15th of the month following the date of the Solo 401k distribution
If you do not withhold the mandatory 20% tax at the time of distribution, you would then pay the taxes with personal funds at the time of tax return. But again, 20% tax withholding is mandatory.
2. File Form 945 by January 31st to report and reconcile what you have withheld
See "Where To File" for information on how to file Form 945 electronically or via paper form. Only one Form 945 should be filed per year.
3. Report the distribution by issuing Form 1099-R from your plan
The 1099-R is filed in the year following the year in which the distribution was performed (e.g. the 1099-R for 2022 is filed in 2023). There are two deadlines for the 1099-R:
- The Payee/recipient copy must be received by January 31st
- The electronic copy must be filed with the IRS by March 31st
You are responsible for the filing of the 1099-R by both deadlines.
Sense Financial can assist with the filing of the 1099-R by request only, provided that we receive your request by our deadline of the second Monday in January.
Please contact your CPA for assistance in calculating the withholding and the reporting of federal income tax withholdings.
Plan year different than employer fiscal year
Can the plan year be different than the employer fiscal year?
Answer:
Yes, the plan year can be different from the fiscal year, but you must then pay careful attention to the deadline for making contributions.
The deadline for depositing employee salary deferrals into the plan is relatively straightforward. However, the same cannot be said for the profit sharing contributions.
For profit sharing contributions, there are different rules depending on the purpose of the deadline. In other words, one set of regulations may specify one deadline for compliance purposes, but another set requires a different deadline for deduction purposes.
In order to deduct a contribution for a given year, it must be deposited by the due date (including extensions) of the company tax return.
For example, ABC Company is a calendar year tax filer. Its 2015 company return is due March 15, 2016, but can be extended to September 15th. If ABC Company does not extend the due date of its company return, it must deposit its contributions to the plan no later than March 15, 2016, in order to claim the deduction on its 2015 return. If ABC does extend, the deposit must be made no later than September 15th.
The Annual Additions limit refers to the total amount of contributions that can be allocated to a participant's account for a given limitation year. In most cases, the limitation year is the same as the plan year. In order for a company contribution to be treated as an annual addition for a given year, that contribution must be deposited no later than 30 days following the due date of the company tax return (with extensions).
For example, the ABC Company extends the deadline for the 2015 company tax return to September 15, 2016. The date by which they would need to deposit the profit sharing contribution in order for it to be treated as a 2015 annual addition is October 15, 2016, which is 30 days after the September 15th tax-filing deadline.
Having precious metals in my personal possession
Can I hold precious metals that are owned by my Solo 401k Trust in a safe at home?
Answer:
No, as this would raise a number of problems. As trustee, the individual may not use plan assets for his or her own benefit. If the coins are held in the individual’s safe – that would look like a distribution from the plan. Plan assets must be held in a trust and not in the individual’s personal possession. You should use a third party depository.
IRC Section 408(m) clearly states that gold, silver, or palladium bullion must be held in the physical possession of a U.S. trustee, otherwise known as a U.S. bank or financial institution. This poses the question: if a plan holder holds precious metals in a safety deposit box at a U.S. bank in the name of the 401k Trust, are the metals in the “physical possession” of a U.S. trustee or bank?
The argument is that the metals are being stored in the bank; they are not in the physical possession of the plan holder. Although the plan trustee controls the safety deposit box in which the metals are stored, the metals are not in the possession of the plan trustee. The metals are arguably in the possession of the bank since they are being held in the bank, although they are not in the control of the bank.
From a legal standpoint, possession is not defined by control, meaning one can be in possession of an item but not control or ownership. Hence, many tax practitioners take the position that holding metals in a safety deposit box in the name of the 401k Trust satisfies IRC Section 408(m) required of “physical possession”.
Although there is little IRS guidance on holding IRS approved coins personally, it’s fairly safe to assume that they should be in physical possession of a trustee (U.S. bank or financial institution). In fact, most tax practitioners believe they should be held by a trustee, as coins may also be bullion.
Paying for training from the Solo 401k plan
I want to expand real estate holdings in my Solo 401k into another sector, but that would require me to take a 3-day course with someone who will be a mentor to teach me this business model in order for me to do this. My question is: can I use the cash that I have accumulated in my Solo 401k to pay for this class?
Answer:
No, you can only use your 401k funds to make investments or to pay for expenses directly related to the investments owned by the 401k. Paying for training courses or classes is a personal expense and cannot be paid out of the 401k.
Checking and savings accounts for my 401k Trust
When my Solo 401K checking account was opened, a savings account was opened at the same time. When money from my rollover was deposited, it went into the savings, not checking. Is that OK?
Answer:
When our preferred banker sets up a bank account for your Solo 401(k) Trust, the bank may recommend setting up a savings account as well. The savings account can serve two purposes:
1. Some clients like to have the savings account to avoid putting all their money into one account for fraud or insurance protection.
For example, if the check book or debit card is lost or stolen, only one account would be affected.
Also, if more than $250,000 is in the Solo 401(k) Trust, having two bank accounts allows the trust to spread the money into multiple bank accounts so that FDIC insurance covers all the funds in the trust.
2. Money in the checking account will not earn as much interest as money in the savings account, and the trustee of the Solo 401(k) has a fiduciary obligation to earn as much money as possible from FDIC insured funds.
Both accounts are in the name of the trust, so you as the trustee can move the money from one account to the other whenever you choose, which can be done easily online.
Correcting Solo 401k Trust EIN
While doing my taxes this year, my accountant realized that my Solo 401k trust has the same EIN as my business. After reviewing the paperwork you originally sent me, I realize that I made an error when I setup my Vanguard account. I gave them my business EIN instead of the trust EIN. Can I rectify this by just giving Vanguard the trust EIN?
Answer:
Contact Vanguard and explain that you originally provided them with the incorrect EIN and ask to correct it. Provide them with the copy of the letter from the IRS reflecting the correct number. Make sure as well that the account name is correct by comparing it with your plan documents.