2020 Form 5500-EZ released
The IRS has released form 5500EZ for 2020. We have updated our instructions which are located on the following page:
The IRS has released form 5500EZ for 2020. We have updated our instructions which are located on the following page:
As year-end is approaching, please note the following important upcoming deadlines:
Plan owners must formally elect to make contributions before December 31st. Depending on your business type, you may also be required to make employee elective deferral contributions before December 31st. We’ve put together a summary for you that answers common questions about contributions. In order to review this information, click on the link below:
If there is a distribution or a Roth conversion within your Solo 401k plan in 2020, Form 1099-R will need to be issued from your Solo 401k by January 31, 2021. Distributions and Roth conversions are taxable events and need to be reported to the IRS. You can find Form 1099-R on the client portal:
Forms to Administer Solo 401k Plan
Sense Financial can assist with creating 1099-R forms. If you would like us to help create this form for your plan, please let us know by Monday, January 11, 2021.
We will need a copy of a completed In-Plan Roth conversion form and/or the completed Distribution form in order to prepare your 1099-R. These forms can be located at the link above. Send your documents to minna@sensefinancial.com no later than January 11th.
Plan participants who turned 72 years old in 2020 are required to take their first required minimum distribution (RMD) before April 1, 2021. If you reached 70 ½ in previous years, you have until December 31 to take your RMD for the year.
To determine the amount of distribution you must take, please click on the RMD calculator below:
As the plan administrator it is your responsibility to withhold the taxes and report the distribution, learn more here:
Withholding 20% Tax on Distribution
Sponsor Reporting:
As the document sponsor of your Qualified Plan, we are preparing to submit our annual report to the IRS. The report will list all 401k plan sponsors using our documents.
If there has been any changes in your situation (e.g. change in the business type, address, addition of employees, etc.) please let us know by Monday, December 21st. Our goal is to provide you with the help and guidance needed to keep your plan in compliance. If you have any question, please don't hesitate to let us know.
Can you provide guidance on what I'm required to do on the tax/CPA side of things? What should I submit to my accountant?
IMPORTANT: Please note that we are not qualified to provide tax, legal or investment advice. This information is intended as general guidance only. You should always consult with an experienced tax professional regarding your personal tax situation.
For the Solo 401k plan itself, you may or may not need to submit the 5500-EZ form. Please review the annual filing requirements HERE.
As plan administrator of your Solo 401k, it is your responsibility to maintain the recordkeeping of the plan. This includes the contributions, distributions, investments, etc. All recordkeeping forms are located under the Maintenance tab within “Miscellaneous Forms.”
For your personal taxes, you will need to report contributions made to the plan:
Other things that would affect your personal taxes are:
* The Solo 401k loan is in default when the cure period has passed. The loan is then considered as a distribution and is taxable and reportable as income.
All of the above are taxable events. If you perform any of the above, you will need to report it through Form 1099-R. As the administrator of your Solo 401k, you are responsible for filing Form 1099R on behalf of your plan. If you would like assistance with generating a 1099-R, please contact us at the beginning of January of the following year to request this service.
As Plan Administrator of your 401k, you are responsible for tracking the funds of your 401k. The monies in your 401k should be kept accounted for separately.
Types of monies include:
You will need to establish a clear accounting method to keep track of each type. Accounting will include the incoming amount(s) as well as the transactions and investments for each. The format for tracking and accounting is up to you. You can use any type of accounting software, such as:
We understand that the uncertainty and disruption caused by COVID-19 have led to a lot of questions including many related to retirement plan administration. While the situation has been changing on an almost hourly basis, we wanted to distribute answers to the questions we are seeing often based on the information we have at this time.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the CARES Act) was signed into law. This expansive law included a number of provisions that affect retirement plans that are intended to give participants affected by the current pandemic access to their assets in retirement plans while minimizing the tax consequences and maximizing the ability to return the assets to the plan, if it is possible.
While much of the language regarding retirement plan provisions is similar to provisions used in the past for disaster relief and RMD waiver, it is unclear at this time how much we can rely on guidance issued related to those changes. This FAQ is intended to be a general overview of the provisions and it is expected that the IRS and/or DOL will issue guidance related to these provisions in the future.
For issues not addressed by the CARES Act, the current rules continue to apply unless there is further legislation or guidance.
Many of the topics discussed below are complex topics that we only address at a very high level; this FAQ is not intended to be a full discussion of all factors involved in making plan administration determinations.
Coronavirus-Related Distributions
Q1. What is a Coronavirus-Related Distribution (CVRD)?
A1. A CVRD is a distribution to a “CVRD Qualified Participant” that is taken on or after January 1, 2020 and before December 31, 2020.
Q2. Do plans have to allow for Coronavirus-Related Distribution (CVRD)?
A2. No, CVRDs are optional distribution triggers.
Q3. Who is a CVRD Qualified Participant?
A3. A CVRD Qualified Participant is a participant who meets at least one of the following requirements.
For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.
Q4. Does a participant need to be an active employee to be a CVRD Qualified Participant?
A4. No. There is nothing in the Bill that would require the participant to be a current employee to be a CVRD Qualified Participant.
Q6. What kind of documentation does the plan need to obtain to determine that a participant is a CVRD Qualified Participant?
A6. The plan administrator may allow participants to self-certify that they are a CVRD Qualified Participant.
Q7. Where can CVRDs be taken from?
A7. Any “Eligible Retirement Plan” as defined in IRC Sec. 402(c)(8)(b) which includes:
Q8. How much can be taken in a CVRD?
A8. A participant’s CVRD cannot exceed $100,000 (or their vested account balance) from all plan maintained by the employer. If the employer is a member of a controlled group or affiliated service group this limit will be aggregated over all the plans.
Q9. What are the tax implications of taking a CVRD?
A9. The 10% early withdrawal penalty tax has been waived for CVRD. The pre-tax portion of the CVRD is subject to normal taxation. However, the participant may choose to spread the taxable income evenly over 3 taxable years starting with the 2020 tax filing.
While a CVRD will be treated as an eligible rollover distribution for many plan purposes, the 20% mandatory withholding will not apply.
Q10. Can a CVRD be repaid?
A10. Yes. The participant will have three years starting from the day following the day the distribution was received. The amount can be rolled over following the normal rules for an eligible rollover distribution (ERD) and will be treated as an ERD for plan purposes.
Q11. Does the plan have to be amended before CVRDs are allowed?
A11. No, plans may operationally allow for CVRDs before the plan is formally amended. The amendment deadline is the last day of the plan year beginning on or after January 1, 2022 (or a later date if specified by the Secretary of the Treasury) with an additional two years for governmental plans.
Coronavirus-Related Loan Provisions
Q14. Are there special loan provisions for CVRD Qualified Participants?
A14. Yes. The CARES Act has two main loan provisions:
Q15. What are the changes to the loan maximum calculations?
A15. For loans made during a 180-day time frame starting on March 27, 2020, when calculating the maximum loan amount that a CVRD Qualified Participant may take the $50,000 or 50% of vested account balance portion of the calculation is increased to $100,000 and 100% of the vested account balance.
Q16. What are the loan repayment changes?
A16. For a CVRD Qualified Participant who has a loan payment due on a new or existing loan from March 27, 2020 thru December 31, 2020, those payments will be delayed by a year. Loan payments will restart with any payments due on or after January 1, 2021. The skipped payments (and any interest that accrued on those skipped payments) must be repaid starting on the one-year anniversary of the first skipped payment.
When the repayments start, the amount will be adjusted to account for the missed interest. Additionally, the maximum repayment period (5 years for most loans) will be extended by the time frame in which payments were skipped.
Q17. Does the plan have to be amended before the loan provisions are utilized?
A17. No, plans may operationally use the loan provisions before the plan is formally amended. The amendment deadline is the last day of the plan year beginning on or after January 1, 2022 (or a later date if specified by the Secretary of the Treasury) with an additional two years for governmental plans.
2020 RMD Waiver
Q18. What plans can waive the 2020 RMD requirements?
A18. The plan types that can waive the 2020 RMD requirements are:
Q19. What RMDs are waived?
A19. RMDs that are required to be distributed to participants or beneficiaries in the 2020 calendar year. This includes first year RMDs that have a required beginning date in 2020.
Q20. What about participants who turn 72 in 2020?
A20. 2020 is disregarded in determining the required beginning date so a participant who turns 72 in 2020 will be treated as if they turned 72 in 2021.
Q21. Do plans have to allow participants to waive their 2020 RMD? Can they force participants to waive their 2020 RMD?
A21. While it is unclear from the CARES Act if this is a mandatory or permissible provision, the language used is mostly identical to the language used in WRERA for the 2009 RMD waiver which the IRS determined was a permissible waiver. If the IRS follows the logic they did in 2008/2009 the plan sponsor would have the options to (1) allow their participants the choice to waive their RMD; (2) waive all RMDs that had not already been distributed; or (3) make no change and force participant to take their RMD as set forth in the plan.
Q22. If the participant has already taken their RMD, can they roll it back into a qualified retirement plan or an IRA?
A22. It is unclear at this time if those amounts could be rolled back into a qualified retirement plan or IRA. The ability to do so for the 2009 RMD waiver came from IRS Notice 2009-82.
Please note the information that we are providing is not intended as legal advice or a "legal opinion". You should consult with your legal counsel for a complete and accurate review of the law as it applies to your specific situation. Any U.S. Federal tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties under the Internal Revenue Code or applicable state or local tax law provisions
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted on March 27, 2020 to provide short-term financial relief to those who have experienced adverse financial consequences from the current pandemic. The CARES Act includes expanded provisions for Coronavirus-related distributions and participant loans.
Solo 401k owners can utilize these expanded provisions under the CARES Act if they qualify. Pursuant to section 2202(a)(4)(A)(ii) of the CARES Act, a qualified individual for purposes of this notice is an individual:
In addition, pursuant to the authority of the Secretary to issue guidance to provide for other factors under section 2202(a)(4)(A)(ii)(III) of the CARES Act, a qualified individual for purposes of Notice 2020-50 is an individual who experiences adverse financial consequences as a result of:
For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.
If a Solo 401k owner meets one of the qualifications above, he/she may rely on self-certification. A self-certification form must be completed by the Solo 401k owner and then kept in his/her file as Plan Administrator of the Solo 401k.
Coronavirus-related distribution provisions
Coronavirus-related loan provisions
The loan provisions of the CARES Act apply to determining the maximum loan amount and delaying the repayment of new and existing participant loans from the Solo 401k.
Action items for Solo 401k owners
Sense Financial will continue to update this page as additional guidance from the IRS and the DOL is expected in the future.
RELATED RESOURCES:
My wife used to work for my company and contributed into our Solo 401k. Can she borrow some of her funds as a loan even though she doesn't work for the company anymore?
Yes, the funds may be used for a participant loan. If your spouse is no longer working for the company, she can no longer make contributions to the plan. The loan repayment can be made from a variety of sources (i.e. income, personal savings, another loan, etc).
With the upcoming deadline for filing please review this article when doing annual reporting:
https://www.sensefinancial.com/5-consideration-filing-form-5500-preparation/
Question:
The credit card you have on file for my Solo 401k annual fee has been stolen and I now have a new card. How do I update the card you have on file?
Answer:
You can update the card using following secured link:
You can submit the payment of the annual fee using the following secured link:
Another deadline is coming which may affect your SFS Solo 401k!
If there is a distribution or a Roth conversion within your Solo 401k plan in 2018, Form 1099-R will need to be issued from your Solo 401k by January 31, 2019. Distributions and Roth conversions are taxable events and need to be reported to the IRS.
You can find Form 1099-R on the client portal:
Our team can assist with creating 1099-R forms. If you would like us to help create a Form 1099-R for your Solo 401k plan, please let us know by Monday, January 14, 2018. We will need a copy of a completed In-Plan Roth conversion form and/or the completed Distribution form in order to prepare your 1099-R. You can locate these forms at the link above. Send your documents to minna@sensefinancial.com no later than January 14th, 2019.