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Solo 401(k) Paperwork – What You Need to Know

Solo 401(k) Paperwork - What You Need to Know

The amazing thing about technology is that you do not have handle any of the paperwork for your Solo 401(k) planIRA Financial has an app that, based off your answers of a few short questions, will customize a Solo 401(k) plan document for you. The business that adopts a 401(k) plan will work with a company, such as IRA Financial or Pension Investors, a third-party administrator (TPA), that will handle all the 401(k) paperwork. This article will explore the main documents associated with the creation of a Solo 401(k) plan.

The Basics

Most businesses establish 401(k) plans that are preapproved by the IRS which means that the IRS has blessed the plan documents and have provided an opinion letter. The TPA company is known as the document plan prototype provider. Generally, the plan documents may not be materially modified and are subject to amendments at least every six years.

When a business establishes a 401(k) plan, the business owner will generally be appointed as trustee of the plan. The trustee is responsible for making all plan decisions, including investment options. For many small businesses, the business will work with a TPA who will help administer the plan and handle all IRS annual administration, such as the filing of IRS Forms 1099-R and 5500.

Solo 401(k) Plan Documents

The following are the primary 401(k) plan documents.

Basic Plan Document

The basic plan document contains all of the non-elective provisions and rules governing the plan that are applicable to all adopting employers. It explains the terms and conditions under which the plan must operate in order to remain in compliance with regulatory requirements.

Adoption Agreement

The adoption agreement contains the elective provisions that are included in the basic plan document. These are the choices the employer makes about how the plan will operate in terms of eligibility requirements, vesting schedule, loan feature, contributions, allocations, and so on. The adoption agreement is not the complete plan document, as it generally indicates only the  plan features that would be available to plan participants.

Essentially, the adoption agreement identifies which of the plan features included in the Basic Plan Document apply to the company plan. Most of the brokerage firms and banks will limit the plan options, whereas clients of IRA Financial will have an open architecture plan in which they can include any provision they want, such as investment choices, the ability to make Roth contributions, and gain access to the loan option.

Summary Plan Description (SPD)

A summary plan description (SPD) document is generally not required for a Solo 401(k) plan since the plan will typically only cover the owner and his or her spouse. Nevertheless, it is common practice to provide an SPD to each participant in a Solo 401(k) plan. The information must also be written in a way that the average plan participant can understand.

401(k) EIN

A 401(k) plan will generally acquire an EIN from the IRS that will allow the 401(k) to open a bank or brokerage account. Most 401(k) plans now have sub-accounts under the main plan account for each plan participant.

Not All 401(k) Documents Are the Same

For a business with employees, your TPA will work with you to help customize your 401(k) plan that best suits your business and retirement needs.  Whereas in the case of a self-employed individual or a small business that has no full-time employees, using the right Solo 401(k) plan documents is crucial.

The most significant advantage of the IRA Financial Solo 401(k) plan versus one established at a bank or financial institution is “checkbook control.” IRA Financial is a self-directed retirement provider and does not sell investments or offer investment advice. We are plan experts and focus on helping our clients manage and administer their plan. Hence, our Solo 401(k) plan documents are self-directed and open architecture allowing the plan participant to essentially make any investment they wish, including alternative assets such as real estate and precious metals.

On the other hand, with a “standard” plan, one is relegated to only making traditional investments such as stocks and mutual funds. In addition, the plan account is required to be opened at the bank or financial institution that provided the plan documents. With IRA Financial, the plan account can be opened at any local bank, including Capital One, Wells Fargo, and even Fidelity.

Plus, as we mentioned earlier, you can use the IRA Financial app to answer some basic questions to get the Solo 401(k) paperwork filled out correctly and promptly.


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