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Risk of using a Solo 401(k) Plan Opinion Letter from a Non-Plan Sponsor

Recently there has been a number of company’s selling and marketing solo 401(k) plan documents that may not have the requisite authority to do so.  Accordingly, a number of these companies are selling plan documents without an IRS opinion letter or in some cases with an IRS opinion letter in the name of third-party.

The Basic solo 401(k) plan documents will include an IRS Determination letter stating that this is a Prototype Plan that meets the requirements of a qualified plan. 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 IRS has approved the plan language 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

There has been a growing number of solo 401(k) plan providers who are marketing solo 401(k) plan documents and are using an opinion letter in another company’s name.  By using such a company, there is a significant risk that the plan documents are not being properly updated or even in IRS compliance. In fact, there are cases where companies have been using plan documents from 2008, without providing any updates.

The plan sponsor is responsible for maintain the plan and by using a company for solo 401(k) plan documents that is not the actual plan sponsor there is great risk that the documents may not be properly kept in IRS compliance.

Using plan documents from a company that does not have an opinion letter in their name offers significant risk.  A self-employed individual or small business owner looking to adopt a solo 401(k) plan, should make sure that they receive an updated IRS opinion letter and more importantly that the opinion letter has been issued in the name of the company selling the plan, not a third-party.

To learn more about IRA Financial Group’s Solo 401(k) plan, please contact a retirement tax specialist at 800-472-0646.

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Posted in Solo 401(k)