Setup

January 19 2015

Do I need a business EIN in order to establish my Solo 401k plan?

Dmitriy Fomichenko Adopting Employer, Setup

I'm completing my Solo 401k application, and it asks for a business EIN. I am a sole proprietor and have been using my name and my Social Security number until now to run my business. Do I need to apply for new EIN? And once I have a new EIN, will I have to file a separate tax return for my business?

Answer:

Yes. A business EIN needs to be listed on the Solo 401k plan documents.

The 401k plan must be adopted by any eligible business of any type (e.g. corporation, partnership, LLC, sole proprietorship, etc.). Proper Employer Identification Number (EIN) must be used in connection with the business. You can not use your Social Security number. Therefore you, as a sole proprietor, need to apply for new EIN with the IRS and use it in connection with your business and on your Solo 401k plan documents.

If you are a sole proprietor, you can continue filing Schedule C (part of your personal tax return). The new business EIN can be entered in section D of your Schedule C. This should have no effect on your tax return, but we suggest you consult tax professional for details.

December 22 2014

Solo 401k Plan and full time employee other than the plan owner and their spouse

Dmitriy Fomichenko Setup, Solo 401k Eligibility

For my Solo 401K plan, if I have more than one employee besides me and my wife, do I have offer them a plan as well?

Answer:

You and your wife are considered owner-employees of the plan. If you have any other full-time employees (working over 1,000 hours per year), they cannot participate in this plan. You cannot have a Solo 401k if you have full-time employees working for you. You can have independent contractors working for you. Please consult your tax advisor, CPA or legal counsel to determine how you would need to structure the roles you need to fill where you’re hiring people to be independent contractors.

December 17 2014

What if the Solo 401k sponsoring entity changes or is dissolved?

Dmitriy Fomichenko Adopting Employer, Setup

I currently have a Solo 401K. What if I decide to dissolve the adopting business? Can I change the adopting business of the plan to another one?

Answer:

Yes. It is possible to amend the plan to reflect the change in the plan sponsor, while keeping the plan information the same. The investments of the plan and bank accounts will not be affected. The Solo 401K plan can be adopted under another business provided that new business is also a form of self-employment without employees.

The adopting business of the plan can be in the form of a sole proprietorship, LLC, corporation, etc.

If you would like to amend your plan, please use THIS FORM.

November 15 2014

Can you open a Solo 401K when you’re 70 years old?

Dmitriy Fomichenko Setup, Solo 401k Eligibility

My parents are selling their business and retiring. They're going to make some money on the sale and are worried about taxes. They have earned income for this year to date from the business, so I am wondering if they can contribute the max to a newly opened Solo 401K and at least get the tax deferred until later. Or does it not make sense because they'll need to make mandatory withdrawals since they're 70. Is this something they should try to pursue?

Answer: Unlike a Traditional IRA which the regulations do not permit contributions once the owner reaches age 70 1/2, the solo 401k is not subject to this restriction. Therefore, the solo 401k participant can open a solo 401k and make contributions past age 70 1/2; however, he or she must commence taking required minimum distributions (RMDs) at age 70 1/2. Be aware of confusion surrounding the RMDs rule that allows participants in full-time employer plans who do not own 5% or more of the employer to delay taking RMDs past age 70 1/2 as long as they are still working. This exception to the RMD rules does not apply to solo 401k plans because the solo 401k owner is a 5% or more owner.

November 11 2014

What happens if sponsoring company shuts down

Dmitriy Fomichenko Maintenance, Plan Updates, Setup, Solo 401k Eligibility

What are the options for my Solo 401K plan if the company that sponsors the plan shuts down (I am no longer self-employed)?

Answer:

A 401k plan is an employer-sponsored plan, therefore in order to maintain your Qualified Retirement Plan, you must maintain a small business or some sort of self-employment activity in some legitimate form. If you shut down your current entity, but continue another type of self-employment activity and make earnings then we can amend the plan to reflect the change.

If, let's say, you quit all of your self-employment activity and get a full-time job, and that is the only income you have (W2 wages working for someone), then the Qualified Plan must be terminated. You will then have the option of rolling over your account into an IRA.

October 17 2014

What is a pre-approved plan?

Dmitriy Fomichenko Maintenance, Plan Documents, Plan Updates, Setup

A pre-approved plan is one that the IRS has reviewed and approved all of the options that are available. The IRS issues an advisory or opinion letter as evidence of the plan's pre-approved status.

All employers who adopt a pre-approved plan covered by the IRS letter are entitled to rely on the approval letter issued at the “global” level without applying for their own, individual determination letter.

Our plan documents include the IRS letter. It is typically sent as a link in the email which accompanies the plan documents.

October 17 2014

What is a plan restatement?

Dmitriy Fomichenko Maintenance, Plan Documents, Plan Updates, Setup

A restatement is a complete re-writing of the plan document. It incorporates changes from any plan amendments that may have been adopted since the last time the document was re-written.

October 17 2014

Why do I need to keep amending my plan?

Dmitriy Fomichenko Maintenance, Plan Documents, Plan Updates, Setup

Qualified plans are governed by a set of Federal laws enacted by Congress and regulated by various agencies. The IRS is responsible for oversight of the tax aspects of retirement plans, and the DOL is responsible for reporting, disclosure and fiduciary aspects of retirement plans. The result is a continual change in the laws due to changing legislation and regulations issued to oversee compliance with the laws. As a result, there are frequent changes in the law but in most cases they are not major ones. A requirement to have a qualified retirement plan is that it must be in writing. This means that as the laws change, your plan must generally be amended to reflect the changes.

October 15 2014

1099-INT reporting earned interest on Solo 401k bank account

Dmitriy Fomichenko Assets, Bank Account, Investing, Setup

I received Form 1099-INT interest earned statement from my bank (Wells Fargo). Does the interest earned need to be reported on my tax return?

If yes, TurboTax will automatically apply taxes on it. Since the bank account is for a 401K, I believe income tax should not be applicable on it. Can you help?

Answer:

Assuming that you set up your 401k bank account correctly, the interest statement (1099-INT) should be issued to the Solo 401k Trust, not to you personally. The Solo 401k Trust EIN should be printed on the form, not your Social Security Number. You do not include this on your personal tax return since you personally didn't earn it, your Solo 401k Trust did. And since the 401k Trust is a tax-exempt entity, the interest will not be taxable and you will not need to report it.

September 18 2014

How do I order checks for the Solo 401k Trust account?

Minna Nah Bank Account, Setup

How do I order checks for the Solo 401k Trust account?

Answer:

There is no special procedure for ordering checks for the Solo 401k Trust. When ordering checks for the Solo 401k Trust, please note the following:

The trust name (e.g. "ABC Solo 401k Trust") must be printed on the checks as the account holder. The trust name should be spelled the same way as it is listed on the plan documents.

The trust name should also be the name on the bank account.

The address listed on the checks should be the address listed on the account. If you’d like a different address printed on the checks, please confirm with the bank first.

The cost of ordering the checks is the expense of the plan and should be paid from the trust's account. (This is NOT a personal expense).

A debit card can be obtained for the Solo 401k Trust bank account. A credit card, however, cannot, as it would be considered a prohibited transaction.