Minna coordinates Sense Financial's communication efforts towards educating clients about the Self Directed IRA and Solo 401k. She enjoys the opportunity to work with clients from various backgrounds, experiences, and goals. She strives to ensure that each client’s goals are met through the products Sense Financial offers.
Did you know that you are the fiduciary of your Solo 401k?
In addition to being a participant in the plan, administering the plan as plan administrator, directing the plan as trustee, you are also the fiduciary.
This means that you are responsible for doing the following, as noted by the US Department of Labor (DOL):
Acting solely in the interest of the participants and their beneficiaries;
Acting for the exclusive purpose of providing benefits to workers participating in the plan and their beneficiaries;
Paying only reasonable plan expenses;
Carrying out duties with the care, skill, prudence, and diligence of a prudent person familiar with such matters;
Following the plan documents; and
Diversifying plan investments
With the benefits of your Solo 401k comes responsibilities. To equip yourself for your fiduciary responsibilities, do the following:
Read your plan documents
Review the set of plan documents that was sent to you by Sense Financial.
The Defined Contribution Adoption Agreement is the central document of your set. Take a few minutes to read through it.
The Summary Plan Description takes the selections from the Defined Contribution Adoption Agreement and spells them out in plain language, in a question and answer format.
Read and watch the resources on the client portal
The client portal is your go-to resource, available at all times.
The Knowledge Base is a great section to read, look up topics via search, and learn. Our videos are also available in the Education section of the client portal.
Make sure you are subscribed to Sense Financial’s emails
Most importantly, our compliance emails. We regularly send out announcements, reminders, and updates related to keeping your plan in compliance.
List quoted from the US Department of Labor (DOL) resource below:
The mega backdoor Roth strategy is a way to get more Roth funds into your retirement account. Roth funds are taxed initially but grow tax-free.
The mega backdoor Roth strategy consists of:
Making after-tax contributions to the Solo 401k, and
Converting those after-tax contributions to Roth within the Solo 401k, and
Keeping those Roth funds in the Solo 401k for checkbook-control investing or rolling over the funds into a Roth IRA
The Mega Backdoor Roth strategy offers an alternative to contributing to a Roth IRA directly, which is limited to $7,000 per year by the IRS. Many individuals also do not qualify for a Roth IRA due to their high earnings.
Your Solo 401k with Sense Financial already includes the features which allow you to utilize the mega backdoor Roth strategy.
How it works
Open separate accounts for your Solo 401k to house your after-tax contributions and Roth funds, if you do not have these already
From a banking standpoint, these separate accounts will be identical. Both are in the name of your 401k and using the EIN of your 401k. However, these accounts are established to keep the funds separate from each other and to assist you in your accounting of each type of fund within your 401k. You can assign nicknames to the separate accounts online in order to differentiate them.
Calculate the after-tax contribution based on your self-employment business earnings
Make the after-tax contribution into the 401k account for after-tax contributions
Once that after-tax contribution is in your 401k, immediately convert the funds to Roth and move those funds to the Roth account
Note that the growth on the after-tax contribution is taxable, so you will want to convert the after-tax contribution to Roth immediately after the contribution is made.
Keep those funds within the Roth account of your Solo 401k for checkbook-control investing or roll those funds over to a Roth IRA
The following year, file a 1099-R to document the conversion
How it should be reflected on a 1099-R
In this case, the 1099-R should document the conversion of the after-tax contribution to Roth within your 401k. The Payer is your 401k trust, which is issuing the 1099-R to you, the Recipient.
Payer: your 401k trust
Payer TIN: the EIN of your 401k trust (not the EIN of your adopting business)
Recipient TIN: your SSN
Recipient: you, as an individual
Box 1: Gross distribution: amount that was converted to Roth
Box 2a: Taxable amount: 0.00 if the after-tax funds were converted to Roth immediately. The taxable amount would be 0.00 since the after-tax contribution was not originally claimed as a deduction and was converted to Roth immediately. If the after-tax contribution was not converted to Roth immediately, the growth amount is taxable and should be entered here.
Box 5: Employee contributions/Designated Roth contributions or insurance premiums: amount of the original after-tax contribution. If you converted the after-tax contribution to Roth immediately after making the contribution, this should be the same amount as in Box 1
Box 7: Distribution code: G which indicates a direct rollover (from after-tax to Roth) within the plan, your 401k
When the 1099-R should be filed
The 1099-R is filed in the year following the year in which the Roth conversion 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.
The Solo 401k allows you to contribute to your plan in two ways- as employee and employer. Within the category of employee contribution, there are three types:
Pre-tax
Roth
Voluntary After-tax
Defining the three types of employee contributions
A pre-tax employee contribution is taken from compensation earned and reduces the taxable income. If you made a pre-tax employee contribution, you would deduct the amount of that contribution on your tax return.
A Roth employee contribution is taken from compensation earned and does not reduce the taxable income. If you made a Roth employee contribution, you would pay taxes at the time of the contribution.
A voluntary after-tax employee contribution is taken from compensation earned and does not reduce the taxable income. If you made a voluntary after-tax employee contribution, you would pay taxes at the time of the contribution.
What are the differences between them?
There are two main differences between these three types of employee contributions- how the distribution is taxed and the maximum limit of the contribution.
How the distribution is taxed
When a pre-tax employee contribution is distributed, both the principal amount of the contribution and its growth is taxed at the current rate at the time of distribution.
A Roth employee contribution and an after-tax contribution is a qualified distribution when you are age 59.5 and older and the funds have been in the 401k for 5 years or longer.
With both a Roth employee contribution and an after-tax contribution, the principal contribution amount is not taxed upon distribution. However, the two contributions differ in whether the growth is taxed.
When a Roth employee contribution is distributed, both the principal contribution amount and the growth are distributed tax-free.
When an after-tax employee contribution is distributed, only the principal contribution amount is distributed tax-free. The growth is taxable and must be taxed at the current rate at the time of distribution.
Maximum limit of the contribution(s)
Both a pre-tax and a Roth employee contribution is subject to a combined maximum limit: $23,000 plus $7,500 catchup (for those age 50 and above) for 2024. In other words, you can make pre-tax contributions, Roth contributions, or a combination of both, but the combined total cannot exceed the maximum limit for the year.
An after-tax employee contribution is subject to a different maximum limit: $69,000 for 2024.
Making an after-tax contribution
Your Solo 401k plan now includes the ability to make after-tax contributions. All three types of employee contributions are documented in the Post PPA version of your Adoption Agreement.
If making an after-tax contribution, you will first want to establish a separate account for the contribution(s). Because an after-tax contribution is different from a Roth contribution, the after-tax contribution should not be kept in the same account as a Roth contribution.
As an after-tax contribution, this would not be processed through payroll
The after-tax contribution would be made from your personal account, after receiving compensation from the adopting business
Once the after-tax contribution is made to its own account, the funds can then be converted to Roth within your 401k as part of a mega backdoor Roth strategy
Due to the tax consequences of the mega backdoor Roth strategy, you will want to check with your CPA first before undertaking the strategy.
The IRS has released Form 8915-E and 8915-F for the reporting of CARES Act distribution(s) that were taken in 2020, their repayment, or their inclusion in income.
If you took a CARES Act distribution in 2020, note which form(s) would apply to you:
Form 8915-E is used to report:
If you took a CARES Act distribution in 2020
Form 8915-F is used to report:
Your income in 2021 if you took a CARES Act distribution in 2020 and have been including in your income in equal amounts over 3 years and that 3-year period has not yet lapsed
Your repayments of a CARES Act distribution, if repaying the distribution
Note that repayment of the CARES Act distribution can be done over 3 years, starting with the day after the distribution was received. Repayment(s) can occur through multiple payments or one lump sum payment by the end of those 3 years. If the entire CARES Act distribution is paid back within that time, the distribution will not be taxed.
You will want to request your CPA’s assistance in completing the appropriate form for your situation.
More information on these two forms can also be found at:
As the year comes to a close, we’d like to remind you to plan for your contributions to your Solo 401k. In this article, we’ll discuss the following questions:
How do I calculate my contributions for this year?
How do I actually make contributions to my Solo 401k?
When is the deadline to make contributions?
How do I calculate my contributions for this year?
Solo 401k contributions are comprised of two components:
On the employee side – employee salary elective deferral
On the employer or business-owner side – employer profit sharing
Contributions can only be made from the business earnings of the adopting business
The Contributions Calculator explains the maximum employee and employer contributions that can be made to the Solo 401k
Always check the totals with your CPA
Starting in 2025, the SECURE Act 2.0 provides for “super catch-up contributions” for those turning 60-63:
How do I actually make contributions to my Solo 401k?
The way to make contributions to your Solo 401k depends on the type of adopting business.
If your Solo 401k is sponsored by a corporation:
Employee salary elective deferrals must be processed through payroll. Speak with your payroll provider to request this.
If payroll has already been processed for the year, the only option is to amend the Q4 reports to reflect the contributions to the 401k. Keep in mind that contributions will affect the taxes paid as well as other numbers. Speak with your payroll provider about making this correction.
If your Solo 401k is sponsored by another type of business (e.g. sole proprietorship, LLC), all contributions must come from your adopting business’s bank account.
All contributions must be elected and documented via the appropriate form.
There are two forms, depending on the type of contribution made.
All elections to contribute must be made before December 31st of the year. This means the date on your contributions form must be before December 31st.
As Plan Administrator, keep the completed contribution forms as part of your record-keeping for the plan.
Issue a check payable to your 401k trust (refer to the IRS letter for the exact spelling)
If I file Form 5500-EZ now, does that obligate me to file subsequent 5500-EZ forms for the following years even if the total plan assets are below 250k?
No. Form 5500-EZ is only required if the total plan value is $250,000 or above, as of the end of the plan year.
Filing the form is not required if the total plan value is below $250,000 as of the end of the plan year, even if the form has been filed for the previous year.
The IRS instructions for Form 5500-EZ note:
You do not have to file Form 5500-EZ for the 2025 plan year for a one-participant plan if the total of the plan’s assets and the assets of all other one-participant plans maintained by the employer at the end of the 2025 plan year does not exceed $250,000, unless 2025 is the final plan year of the plan.
Terminating your Solo 401k plan includes the following steps:
Distribute all assets of your Solo 401k plan
Distributions may be taxable or non-taxable, depending on the type of distribution taken.
Formally request to terminate your Solo 401k plan
You must submit a request to us in writing for the termination of your Solo 401k plan.
We will issue a plan termination package to you
The plan termination package includes two documents which will be emailed to you- the Action by Board of Directors document and the Plan Termination package.
Sign the documents and keep them for your records
Since you are Plan Administrator, you are responsible for keeping all records related to the Solo 401k plan. This includes the termination documents.
Prepare the filing for the year in which the Solo 401k plan was terminated
If you are terminating your Solo 401k Plan this year, you will have to complete the following forms next year. Obtaining, completing, and submitting these forms are your responsibility.
Form 1099-R is required for both taxable distributions and non-taxable rollovers. This form must be distributed to the recipient of the distribution in January of the year following the distribution or rollover.
I am trying to rollover from my existing IRA to my Solo 401k. The IRA custodian is saying that this can be processed as an indirect rollover, which is allowed once a year. Is this the correct way to proceed?
A rollover can be processed as an indirect rollover or a direct rollover.
Indirect rollovers are reported as taxable events
Direct rollovers are reported as non-taxable events
Direct rollovers are strongly recommended. It is your responsibility to ensure that the custodian processes your request as a direct rollover.
The custodian processing the rollover will issue a 1099-R, reporting the rollover as taxable or non-taxable
Indirect rollovers will require additional filing and reporting from you
Indirect rollover
In an indirect rollover, the custodian processes the funds as a personal distribution, which is a taxable event
You receive the distribution
You must then roll the funds over to another retirement plan within 60 days to avoid taxation and penalties
You must also report to the IRS that the funds were rolled over to another retirement plan, i.e. the Solo 401k
401ks do not have a form to report the receipt of rollover funds, like Form 5498. Form 5498 is for reporting the receipt of rollover funds into an IRA only; it is not applicable for a 401k.
A 1099-R issued by the custodian would show the following, if processed as a personal distribution:
Box 1: Rollover amount
Box 2.a: Anything other than “0.00”
Box 7: Anything other than “G”
If the 1099-R was issued as above, you will need to correct/report/show that the funds were received into your Solo 401k, instead of being kept by you as a personal distribution:
Contact the custodian and request that they reissue a corrected Form 1099-R
Request help from your CPA
Let your CPA know that the funds were moved into your 401k, and give them the 1099-R to review. Your CPA may be able to offset that amount on your tax return by indicating that the funds were deposited into a qualified plan.
In this case, the IRS will likely contact you asking you for proof that the funds were rolled over into your 401k, which can include a 401k account bank statement showing the deposit of funds, your plan documents with the IRS Opinion letter, and a letter of explanation.
Direct rollover
In a direct rollover, the custodian processes the funds as going from one retirement plan to another, e.g. from the IRA to the Solo 401k
The direct rollover check should be made out to the 401k and sent to your address
You then deposit the direct rollover check into the 401k account
A 1099-R issued by the custodian would show the following, if processed as a direct rollover:
Box 1: Rollover amount
Box 2.a: Should be “0.00”
Box 7: Should be “G”
Direct rollovers are best for Solo 401ks. Our instructions explain how to initiate a direct rollover into your Solo 401k.
