Author: Paul A. Carl, CHSA, CPFA™ Vice President, Retirement Plan Consulting, Registered Representative
Short answer: YES. Read-on for the longer answer.
From time to time, I’m approached by someone who has a question about a Solo 401(k) Plan. Storylines are similar – I created a Solo 401(k) Plan while I worked as a self-employed, independent consultant. I stopped funding the Solo 401(k) Plan after several years because I started working for “Company X.” I’ve let the fully invested Solo 401(k) Plan sit for a few years. My balance is $300,000 (or $400,000 or $500,000…). Can I roll this money over to an IRA or the Company X 401(k)?
While the answer to the rollover question is ‘yes,’ that’s possibly not the most important question. The real question is, “Did you start filing the Form 5500-EZ (or Form 5500-SF) when your Solo 401(k) Plan value exceeded $250,000?" Sometimes the answer to that question is "No" or "Huh?". Other times it's, "What do you mean?" Often it's a combination of those responses accompanied by a puzzled facial expression.
Solo 401(k) Plans have relatively uncomplicated rules that need to be followed. If you sponsor a Solo 401(k) Plan, consider asking yourself the following questions to help you follow those rules:
- Do I have a signed and dated plan document?
- Has the plan document been amended and restated for the current 6-year amendment and restatement cycle deadline of July 31, 2022?
- Do I keep an accounting of all contribution sources such as employee pre-tax and Roth deferrals, employer match and profit sharing contributions, rollovers?
- Have I filed a Form 5500-EZ for every year that the balance in my Solo 401(k) Plan exceeded $250,000?
- If/when I terminated my Solo 401(k) Plan, did I file a Form 5500-EZ (regardless of asset market value)?
The best response to each question is “yes.”
While each item may seem simple, the easiest and most frequently overlooked may be the Form 5500-EZ filing. For anyone who has not received an IRS penalty notice for an overdue form, the IRS has granted relief to the non-filer (IRS Rev. Proc. 2015-32). Pursuing the relief means following certain procedures outlined by the IRS including the payment of a $500 per delinquent return fee, up to $1,500 per submission for the same plan. While this may seem costly, consider that without the relief program, a non-filer could face a $250 per day fine up to $150,000 for each late Form 5500-EZ filing, plus interest.
Is your Solo 401(k) Plan fully compliant?
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