It is very important that when adopting a solo 401(k) plan that the plan documents have been pre-approved by the IRS. Once can confirm this by receiving a plan opinion letter generated by the IRS. Generally, if an employer adopts a standardized master or prototype plan, the employer may rely on the master or prototype document sponsor’s favorable IRS opinion letter. The favorable opinion letter assures the employer that the plan language has been approved by the IRS and that any subsequent tax disqualification of the plan will not be applied retroactively as long as the plan has been otherwise lawfully operated. The assurance that plans will not be retroactively disqualified is sometimes referred to as guaranteed reliance.
Because the plan sponsor of the 401(k) plan documents is required to keep the plan in good standing with the IRS, it is crucial that the 401(k) plan opinion be titled in the name of the plan sponsor, which should be the company that provided you the plan documents. One should be cautious about receiving a plan opinion letter addressed to a company other than the company that issued you the plan documents.
Regarding the solo 401(k) plan, because most businesses covering only the employer adopt standardized master or prototype plans, these employers typically will not need to engage in any additional plan approval procedures. These employers ordinarily may rely on the opinion letter granted to the document sponsor. Therefore, in order to rely on the IRS plan opinion letter
To learn more about IRA Financial Group’s Solo 401(k) Plan, please contact a tax professional at 800-472-0646