The Solo 401k is also considered the Self-directed retirement account for small businesses. This retirement plan offers a wide range of financial assistance and opportunity for wealthy-building. Nevertheless, there are also issues that may arise especially if you do not comply with the rules. Dealing with the right and trusted 401k plan provider is your first step to make sure that you are in the right track.
Here are some of the most common issues and viable solutions as regards to the Individual k retirement plan:
Common Issues with the Self-directed Retirement Account for Small Businesses
ISSUE: Loan and Repayment
Based on the Internal Revenue Code Section 72(p), plan owners are allowed to borrow from the 401k retirement account type. However, there are problems such as the failure of the borrower to pay back the borrowed amount. Aside from this, there are many cases of delayed repayments which may incur penalties and charges. In case of non-repayment, the loan is considered withdrawal which is also subject to sanctions.
SOLUTION
The only possible solution for this problem is repayment of the loan in a prompt and proper manner. According to the Self-directed retirement account for small businesses rules on loans, borrowers are required to repay the Prime Rate +1%. The repayment must be made at least quarterly within a span of five years or less.
ISSUE: Contribution Limits and Deadlines
The maximum contribution limit of the account depends on the type of contribution the participant opted to make. For instance, the salary deferral contribution as of 2015 is $18,000. With an additional $6,000 catch up contribution for participants 50 years and older, the annual total for salary deferral is $24,000. For the profit sharing component, an additional 25% is added hence a total of $59,000 is the maximum contribution limit. A common issue in this category is the delay or failure of the participant to comply with the contribution limits and deadlines.
SOLUTION
It is imperative that the account owner elects the type of contribution he prefers to make on or before the 31st of December on the current fiscal year. The actual contribution must be made before or by the tax-filing deadline.
The Self-directed retirement account for small businesses provides viable assistance for plan owners. Issues and problems however may hinder you from enjoying the perks of the Solo 401 k. Thus, compliance with the rules is a must to maximize the full potentials of the retirement plan.
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