Welcome to the Solo 401k Beginner’s Guide

 

Not sure where to start? Click below

Client Portal
A resource with this icon is located on the client portal.
Client Portal
A resource with this icon is located on our YouTube channel.
Client Portal
A resource with this icon is located in the Knowledge Base section of our client portal.

Understanding the Solo 401k Process

Setting up your Solo 401k is a three-step process.

  • Step 1:  your plan documents are created

    The process begins when you submit a completed Client Information Form (Step 1).  We will then create the plan documents for your 401k.

  • Step 2:  you initiate a rollover(s) to fund the plan

    Once you receive and sign the plan documents, you are ready to proceed with Step 2.  In Step 2, you will initiate the rollover(s) with the current custodian(s).

    Because you will be initiating Step 2, please review the instructions for this step carefully before proceeding.

  • Step 3:  you establish an account for your 401k trust at the establishment of your choice

    Step 3 is also initiated by you once you are ready to fund your Solo 401k.

    Because you will be initiating Step 3, please review the instructions for this step carefully before proceeding.

  • More information is available at:

    Sense Financial Resource Solo 401k Process Infographic

    Client PortalStep 1

    Client PortalStep 2

    Client PortalStep 3

Understanding Solo 401k Plan Documents

The plan documents have been created for you in order to establish your Solo 401k plan and trust.  The trust has been established to hold the assets of your plan.

  • Action by Board of Directors documents the formal decision by your adopting business to adopt the 401k.

    What you need to do:

    Sign and date the document. Use the adoption date as the date of signature.

    Keep this signed document in your file.

  • The Adoption Agreement documents the specific provisions of the 401k plan.  This includes the adopting business information, name of plan and trust, eligibility requirements, types of contributions that can be made to the plan, investment control, and distribution provisions.

    What you need to do:

    Sign the document.

    Keep this signed document in your file.

  • The Basic Plan Document is the formal plan document which governs the operation of the 401k.  The document includes all provisions of the 401k.  These provisions meet the standards set forth in the Internal Revenue Code. 

    Because of its length, the Basic Plan Document is usually given as a link in the email containing the plan documents.

    What you need to do:

    No signature is needed on this document.

    Review and keep this document in your file.

  • The Beneficiary Designation Form documents the participant’s choices related to the distribution of plan assets upon the death of the participant.

    When completing the Beneficiary Designation form, note the following:

    • At least one primary beneficiary must be named
    • If the participant is married, the plan requires that the spouse is 100% primary beneficiary.
    • If the participant would like to choose someone other than the spouse as the 100% primary beneficiary, then the spouse must sign the Spousal Consent section and the form must be notarized.
    • Notarization is not necessary if the participant is:
      • Single, or
      • Married and choosing the spouse as 100% primary beneficiary
    • Contingent beneficiaries are not required.

    What you need to do:

    Complete the form in its entirety.

    Keep the completed and signed form in your file.

    The Beneficiary Designation Form can be modified at any time. If you would like to modify your form, complete a new form and check “Change.”  Keep all records of these forms in your file.

  • The Contingent Successor Trustee document serves as the formal appointment and acceptance of a contingent successor trustee.  This document is only given if you have requested a contingent successor trustee on your Client Information Form.

    What you need to do:

    Sign on the first line to appoint the Contingent Successor Trustee.

    Your Contingent Successor Trustee must sign on the second line to accept the appointment.

    Keep the signed document in your file.

  • The Defined Contribution Trust Document outlines the features of the trust and the responsibilities of the trustee. 

    The 401k Trust is established to hold the assets of the 401k Plan.  The plan’s assets are held in a trust in order to ensure that the assets are used to benefit the plan’s participants and beneficiaries.  The 401k Trust must have at least one trustee.

    What you need to do:

    Sign the document.

    Keep the signed document in your file.

  • The In Plan Roth Conversion adds the Roth conversion feature to your 401k plan.  This feature allows you to convert pre-tax funds to Roth within your plan.

    This document does not perform a Roth conversion; it simply outlines this feature within your plan.

    What you need to do:

    Sign the document on pages 4 and 6.

    Keep the signed document in your file.

    If you would like to perform a Roth conversion, please review and follow the instructions located in the Knowledge Base.
    Article on how to perform a Roth conversion
    Knowledge Base

    Quick Tip VideosVideo: In Plan Roth Conversion

     

  • The In Plan Roth Conversion Notice informs participants of the Roth conversion feature.

    What you need to do:

    No signature is needed on this document.

    Review and keep this document in your file.

  • The IRS Plan Opinion Letter states that the 401k prototype plan documents have been examined by the IRS.  The IRS Letter also states that the 401k plan meets the qualifications of Section 401 of the Internal Revenue Code.

    The IRS Plan Determination Letter is usually given as a link in the email containing the plan documents.

    What you need to do:

    No signature is needed on this document.

    Review and keep this document in your file.

  • The Summary Plan Description communicates the essentials of the 401k plan to its participants.  It describes the 401k plan’s features as well as the participant’s rights and obligations.

    The Employee Retirement Income Security Act (ERISA) requires employers to communicate the existence and basic terms of its retirement plan to its employees.  The Summary Plan Description is designed to fulfill this.

    The 401k Loan Policy is also included in the Summary Plan Description as an appendix.  If you are interested in the 401k loan feature, please review the Loan Policy at the end of the document.

    What you need to do:

    No signature is needed on this document.

    Review and keep this document in your file.

  • The 401k Trust has its own EIN since it is a separate entity from the adopting business.  The 401k Trust EIN should be used for all bank/ brokerage accounts opened for the 401k Trust.  The 401k Trust EIN should also be used for any tax reporting for the 401k.

    The plan documents will list both EINs- the EIN for the adopting business and the EIN for the 401k Trust.  This is correct.

    What you need to do:

    No signature is needed on this document.

    Review and keep this document in your file.

    More information is available at:
    Knowledge Base Article on two EINS

The IRS will occasionally release amendments to the plan.  When this occurs, Sense Financial will update your plan documents for you.  We will send you the amendment documents and instructions via email. 

Please follow the instructions in these emails.  You will need to adopt these amendments for the plan to remain compliant.

 Understanding your Role as Plan Administrator

You are the Plan Administrator of your 401k plan.  It is important to understand and administer your responsibilities as Plan Administrator. Failure to properly administer your plan can result in the disqualification of your 401k and may incur penalties by the IRS or DOL.

  • As Plan Administrator, you are responsible for:

    1. Recordkeeping
    2. Reporting, if needed

    Your first responsibility as Plan Administrator is recordkeeping.  This includes keeping records of the following:

    • Plan documents
    • Beneficiary Designation form(s)
    • Any rollovers into the plan
    • Any contributions made to the plan
    • Any transactions of the plan
    • Any investments made by the plan

    All plan documents, including signature pages, must be kept by you as Plan Administrator.  This can be in the paper and/or digital form. 

    You must also keep complete and accurate records of all 401k activities.  This must be done on an ongoing basis.

    Records of contributions and investments must be kept by you as Plan Administrator.  Forms for recordkeeping are available on the client portal.  It is your responsibility to complete the appropriate form and keep it in your file as part of your records.

  • You are also responsible for any reporting required for your 401k if needed. 

    As Plan Administrator, you must be aware of and file any reporting on behalf of your Solo 401k plan.  Depending on the activity within your 401k, this may include:

    • 5500 EZ if your plan has assets of over $250,000 by the end of the year
    • 1099-R if you perform any taxable events in your plan, e.g. distribution, Roth conversion

    Deadlines for reporting

    For a plan year ending on December 31st, the reporting deadlines for the following year would be:

    • January 31: 1099-R must be mailed to the participant
    • July 31: 5500-EZ
    • March:  1099-R must be submitted to the IRS, if electronically

  Understanding the Client Portal

The client portal is an important tool for setting up and maintaining your Solo 401k.

  • Administering your Solo 401k is not complicated, but you must take the time to become familiar with your responsibilities.  This client portal is designed to assist you.

    Resources available on the portal:

    • Transfer/ Rollover instructions
    • Bank/ brokerage account instructions
    • Contact information for banks and brokerages
    • Forms for recordkeeping
    • Solo 401k Loan application and instructions
    • 5500-EZ instructions
    • Prohibited transactions information
    • Solo 401k video library
    • Knowledge Base articles on how to use the Solo 401k
    • Updating password and credit card information

    Check the client portal often.  Important notifications are posted on the portal, along with the resources needed for your 401k.

    Client PortalIntroduction to the Client Portal

   Maintaining your Solo 401k

You are responsible for maintaining your 401k.  This will include:

   Investing with your Solo 401k

The Solo 401k allows you to invest your 401k funds in traditional and non-traditional assets.  Now that your Solo 401k is established, you can direct the investments of the 401k.

   Taking a Solo 401k Loan

Your Solo 401k plan includes a loan feature.  The administration of a 401k loan is your responsibility as Plan Administrator.