All Forum Posts by: Joshua Talamante

@Dan Roush

FYI Matt Sorensen posted the article below and is a good read when opening a new solo 401k. 

Solo 401(k) plans have grown significantly and are often used by self-directed investors. Solo 401(k)s are an excellent tool for self employed persons to maximize contributions in their own business or self-employment just like large companies who offer plans for their employees. The basic rules for solo 401(k)s are that you must be self-employed and that you must have a no other employees other than the business owner and family. As happens with many good things, this is starting to get over-sold and we are seeing common problems arise with persons who create them on-line or with the assistance of someone who has no credentials or experience outside of creating a catchy website. Here are a few things to watch out for.

Top Three Mistakes in Solo 401(k) Plans

1. Failure to Update/Amend

Pursuant to Revenue Procedure 2007-44, 401(k) plans shall be amended and restated every six years to conform with current law. The company who provided your plan document, usually what is called a pre-approved plan document for solo 401(k)’s, should be providing you with these updates so that your plan stays in compliance with the amendment cycles established by the IRS. Failure to properly update the plan can result in significant penalties and revocation of tax status.

2. Using an LLC With Rental Income as The Employer/Company

Solo 401(k)s must be established by an employer company. Unlike IRAs, where any individual may establish an account, a 401(k) may only be established by a company and is a benefit for its employees. For example, a solo 401(k) for a self-employed real estate agent with no other employees is created for the real estate agent who is the sole employee/owner. For many self-employed persons who have no other employees, this type of 401(k) is an excellent retirement plan too.

Unfortunately, the solo 401(k) is being oversold and over promoted to real estate investors who only own rentals. We have seen many promoters (operating out of a basement somewhere) who state that you can establish a solo 401(k) with your LLC that owns rental real estate. After all, they say, the LLC is a company and you are the only owner. Therefore this company can establish a solo 401(k). This is only partly true. The LLC that owns rental properties is not a proper entity in which to establish a solo 401(k) since the LLC receives "rental income" and since the owners of the LLC are not considered "employees" receiving wages or earned income that may be contributed to a retirement account. Rental income cannot be contributed to a retirement account and as a result the owner of the LLC is not an employee or person receiving earned income that qualifies to have a solo 401(k) account. All 401(k)s, solo 401(k)s included, must be established by a company for the benefit of its employees with wages or earned income. See IRS Publication 560. As a result, we recommend that clients use companies where there is wage income (e.g. s-corps) or self-employment income that creates earned income on schedule C be used to establish a solo 401(k). While an LLC may be used to adopt a solo 401(k), that would only be the case if the LLC receives ordinary income for its owner that is then claimed on schedule C of the owner's tax return.

3. Failing to File Form 5500-EZ

In general, 401(k)s are required to file a return called from 5500. Solo 401(k)s, however, have some exemptions to the 5500 filing requirement but there are many situations where a solo 401(k) is still required to file an annual form 5500-EZ return. The first instance where a 5500-EZ tax return is required is when the solo 401(k) has over $250,000 in assets. The second instance is when the plan is terminated. Regardless of assets, a form 5500 must still be filed at termination.

Our law firm has experience in creating solo 401(k)s that can be self-trustee'd and self-directed and we also assist our clients with annual maintenance, plan amendments, and required annual 5500-EZ filings. Contact us at the law firm to learn more information about our services.

@Jason Staine Our aim is to be easier to use than your local bank.  Especially for real estate transaction. Its easier to use us for wires (most banks make you walk in and sit in front of a banker for 30 min) and making deposits is simple through our mobile APP

If you do find a local bank or if @George Blower can line you up with his WF or Bank of America bankers I would ask them the following as I have seen this as pitfalls for banking your SoloK account:

1) What is their dormant account policy and what is the fee: Many of these 401K accounts have very low transaction volumes and can end up in dormant status with a typical fee of $25 a month

2) What are the minimum balance requirements: I've seen it where the bankers don't go into detail with this because they hear that you are rolling over a sizeable amount and assume that you are going to keep those balances in the account.  Most of these SoloK accounts start out with large balances and then after the investment drop way down.  You don't want to be getting hit with a $15 monthly service fee.

3) Checks: as stated above these accounts have low monthly volumes.  A box of checks could last you 8 years.  Most banks (especially for business accounts) charge a ridiculous amount for business checks.  Sometimes north of $50.  We offer them for free but if you go with another bank I would recommend you buy the checks at Costco.  They are like $12.

4) Multiple accounts:  Often with these 401K plans you will be opening multiple checking accounts (one for Roth Funds, maybe one for traditional, if your spouse is on the plan then one for them). Just be aware that when opening these accounts they all will be subject to min balance requirements. (BTW we don't have min. balance requirments)