If your adopting business address changes, this should be updated:
Email your address change to clients@sensefinancial.com. We will update your address in our system.
To update the address with the IRS for the 401k EIN, complete one of the methods in their instructions:
As plan administrator, you are responsible for administering the plan according to the plan documents and in compliance with the IRS.
Your responsibilities as plan administrator include:
Recordkeeping is one of the main responsibilities of the plan administrator. You will need records of all contributions, distributions, investments, etc.
The Miscellaneous Forms section contains forms that you can complete and keep in your files as plan administrator:
Separate accounts are required by your plan. They must be established for each participant and per type(s) of funds within the plan. They are also helpful for tracking the balances of each type of fund within your 401k.
Different types of funds include:
As you track the different funds within your Solo 401k, you can choose your accounting method. Choose one that you can do consistently.
https://clients.sensefinancial.com/accounting-within-your-solo-401k
You are also responsible for all filings on behalf of the plan. Depending on the activities and value of your plan, you may be required to file a 1099-R and/or a 5500-EZ:
If a participant loan is taken from your Solo 401k, you also become loan administrator. You must ensure that all participant loans are being repaid in a timely manner, according to the repayment schedule established at the time of the loan.
If a repayment is missed and the cure period has passed, you are required to report the defaulted loan as a deemed distribution via a 1099-R.
https://www.irs.gov/retirement-plans/plan-sponsor/a-plan-sponsors-responsibilities
You may be able to obtain a possible extension for filing Form 5500-EZ, but extensions must be obtained before the filing due date. If an extension is obtained, you would mark the appropriate box on Form 5500-EZ, Part I, B.
The due date of Form 5500-EZ filing is:
Possible extensions to file Form 5500-EZ include:
You can file for a one-time extension of the Form 5500-EZ deadline by filing Form 5558.
To be granted an extension:
Form 5558 instructions and information can be found on the IRS website:
https://www.irs.gov/forms-pubs/about-form-5558
You may also be granted an extension of the Form 5500-EZ deadline if your adopting business has been granted an extension of its federal income tax return, to a date later than the normal Form 5500-EZ deadline.
This extension is automatically granted if all of the following conditions are met:
To utilize this extension, check “Automatic extension" in Part I, B of Form 5500-EZ.
According to the IRS:
The IRS may announce special extensions of time under certain circumstances, such as extensions for Presidentially-declared disasters or for service in, or in support of, the Armed Forces of the United States in a combat zone. If you are relying on one of these announced special extensions, check the “special extension” box on the Form 5500-EZ, Part I, line B, and enter a description of the announced authority for the extension.
Distributing funds out of the Solo 401k is called an “in-service distribution” when the Solo 401k plan and its adopting business are still active. The distributed funds can be rolled over into another retirement account.
Most clients do not want to roll funds out of the Solo 401k because of its checkbook control and ability to invest in a wide range of investments. However, there may be certain cases when a client wishes to roll funds out of the Solo 401k.
The ability to take an in-service distribution from the Solo 401k is based on:
| Type of fund in the Solo 401k | Can you roll it out of the Solo 401k? |
| Rollover funds | Yes, at any time |
| Voluntary after-tax contribution funds | Yes, at any time |
| Pre-tax elective deferral/employee contribution funds | Yes, if you have attained age 59.5 |
| Roth elective deferral/employee contribution funds | Yes, if you have attained age 59.5 and after a 5-year taxable period (beginning with the taxable year the Roth contribution was made) |
| Non-elective/employer contribution funds | Yes, if you have attained age 21 |
| In-plan Roth rollover funds (e.g. from an in-plan Roth conversion) | Yes, after a 5-year taxable period (beginning with the taxable year the Roth conversion was performed |
To check which types of retirement accounts can receive rollover funds from the Solo 401k, see the IRS rollover chart below:
https://www.irs.gov/pub/irs-tege/rollover_chart.pdf
Since you have checkbook control over your Solo 401k, you will need to move the funds on behalf of your Solo 401k. For example, to roll your Solo 401k into an IRA, you would write a check from the Solo 401k bank account to the IRA.
Form 1099-R is required for non-taxable rollovers. This form must be distributed from your Solo 401k to you in January of the year following the distribution or rollover.
Can I have part-time or full-time employees in my business, if I have a Solo 401k? What if I want to hire employees in the future?
Your Solo 401k is an owner-only plan.
It is designed for the owner of a business who does not have full-time or certain part-time employees, other than the owner and potentially, the spouse.
You are not eligible for the Solo 401k if you/your spouse:
The above criteria does not apply to independent contractors (1099s), if paid by the business. Independent contractors are not considered employees of the business.
If you have any part-time employee(s), please do the following:
Any part-time employee(s) who have worked at least 500 hours for 2 consecutive years become eligible for the plan. And this causes you to become ineligible for the Solo 401k, because the plan is meant for owners only.
If your part-time employee(s) have worked and will remain under 500 hours
For more information on terminating the plan:
What if I filed Form 5500-EZ late?
Although the IRS has increased the penalties for late filing of Form 5500-EZ, they also offer two options for penalty relief.
Form 5500-EZ is an annual informational form for the Solo 401k, filed with the IRS:
If you are filing Form 5500-EZ after the deadline, the IRS has provided two possible options for late filing penalty relief:
https://www.irs.gov/retirement-plans/penalty-relief-program-for-form-5500-ez-late-filers
https://www.irs.gov/payments/penalty-relief-for-reasonable-cause
For more information:
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):
With the benefits of your Solo 401k comes responsibilities. To equip yourself for your fiduciary responsibilities, do the following:
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.
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.
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:
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.
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.
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.
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.
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:
You are responsible for the filing of the 1099-R by both deadlines.
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:
Form 8915-F is used to report:
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:
I'm getting ready to file Form 5500-EZ and need help calculating the plan assets of my 401k. I used some of the funds for a down payment to purchase an investment property. The rest of the purchase price was financed using a hard money loan. My wife doesn't have any investments at this time, just some cash. How do I calculate the net plan assets?
To calculate the total plan assets of the 401k, add up all assets plus cash for all participants.
Form 5500-EZ is for the entire plan, i.e. for all participants, combined. If the total plan assets exceed $250,000, you are required to file Form 5500-EZ.
Form 5500-EZ Instructions
How do I value real estate in my Solo 401k plan?
Total plan assets will be calculated as:
+ $220,000.00 Value of the property
+ $15,675.78 Cash in your account
+ $18,000.13 Cash in spouse's account
Total plan assets: $253,675.91 (Note: since the total exceeds $250,000, you are required to file the 5500-EZ)*
- $119,841.09 Mortgage against the property (Total plan liabilities)
________________________________________________
Net plan assets: $133,834.82