Self-employed people can benefit from the Solo 401(k) retirement plans. Unfortunately, several of these plans need to be correctly maintained and can lead to plan termination and significant penalties. When you have this plan, it is necessary to ensure that the 401(K) gets maintained well.
Discussed below is the checklist you need to adhere to:
- Is the plan updated?
The IRS states that the solo 401(k) plans need to get amended after every six months. The majority of the plan documents update takes place after every two or three years. If you have had a plan for more than six years and didn’t restate the plan or even adopt the amendments, the plan needs to be compliant. You might have to pay fines, and the plan might get terminated. On the other hand, when your plan is outdated, the ideal choice here is to restate the plan so that it stays compliant with the existing law.
- Are you correctly tracking the plan funds?
You need to keep track of the solo 401(K) plan funds, which is essential for you to track, and it should recognize various sources for all the participants. For instance, when the two spouses contribute to the Roth 401(K) employee contributions with the organization matching to the conventional 401(k) dollars, it is essential to track all the varied fund sources. There should also be a written account record for the same. To know more, you can check out https://www.solo401k.com/.
- The participant and source should separate the plan funds
You need to keep separate bank accounts for multiple participant funds. That aside, you should also correctly track and keep a document of the investments from varied fund sources so that the 401(k) returns are correctly credited to the correct investing account. Separating conventional funds from Roth funds is also essential.
Finally, you need to know if the Solo 401(k) should get filed in Form 5500. Here are two vital situations where you might have to get this done. The first situation is where the solo 401(k) plan comprises $250,000 in assets. The other is that the solo 401(k) plan gets terminated. When such situations occur, you need to file Form 5500 at the IRS. This form is due every July 31st. However, you won’t be able to file Form 5500-EZ electronically. Therefore, you need to use mail for the same.
Here the solo 401(k) owners have the scope to file Form 5500 online using the DOL. And this filing process is instead an intelligent move, as it can get tracked and filed by plan owners. Also, when you qualify for the 5500-EZ, the DOL/IRS enables you to file your Form 5500-SF online. However, you have the scope to skip over various other questions that can allow you to answer all that is on the shorter Form 5500-EZ. These are a few facts that you need to consider when determining whether the Solo 401(K) plan is compliant or not. If required speak with an expert to clarify all your doubts.