The Solo 401k plan is seen as a great way for plan owners to take over their retirement funds and invest as they wish. In this structure, the plan owner also acts as the Solo 401k plan administrator. Along with the freedom of the self-directed checkbook control, however, come certain Solo 401k plan administrator responsibilities. The good news is that it is not overly complicated to administer your Solo 401k plan. Here are a few things to keep in mind as the plan administrator:
Solo 401k Plan Administrator Responsibilities: Recordkeeping
As the plan administrator, you are responsible for the recordkeeping of all contributions, distributions, loans, and investments – including the invested amount, any expenses, and the returns from these investments. In short, you need to keep track of all the money coming in and out of your account.
If you choose to have a Roth account, it is also important to keep a clear record of the Roth contributions, separate from the pre-tax contributions to your regular account.
This recordkeeping can be done in QuickBooks or even a simple Excel sheet. The most important thing is that if your Solo 401k gets audited, you need to be able to show a record that accounts for the money in your plan.
Solo 401k Plan Administrator Responsibilities: Investments
As the plan trustee, you need to properly handle all the investments on behalf of the plan. Keep in mind that the Solo 401k plan needs to stay separate from your personal accounts. Therefore, even though you will be the one who signs all the contracts and other investment documents, all investments have to be under the name of your Solo 401k Trust.
As the plan trustee, you are responsible to make sure that your Solo 401k plan does not engage in a prohibited transaction. When in doubt, check with a tax professional before entering the transaction.
Borrowing from the Solo 401k plan
The Solo 401k loan can be acquired for any reason at your discretion. However, you still need to complete and submit a loan application before taking the money out of your Solo 401k bank account. This loan application process is simple and can be completed within a day or two.
You will need to make sure that the borrowed amount does not exceed the loan limit of $50,000 or 50% of the account value, whichever is less. Always record the borrowed amount and all the principal and interest amounts as mentioned above.
IRS Filing Requirements
If your plan value stays under the $250,000 threshold, there is no annual tax filing required. If your total plan assets exceed $250,000, however, you will need to file the 5500EZ form every year to the IRS. This form is quite short and simple to fill out. If you require any assistance, contact your plan provider or a tax professional to help you complete and file the form before the tax-filing deadline.
Acting as the administrator of a Solo 401k plan is not necessarily a difficult task. It mainly requires some due diligence and persistent recordkeeping from the plan owners. Having a Solo 401k can open the door to many investment opportunities with tax benefits, allowing plan owners to build their wealth over the years without too many restrictions. Therefore, in order to make sure the plan is in compliance with the IRS regulations, plan owners are recommended to understand and comply with their Solo 401k plan administrator responsibilities .
Related Search Terms
- Solo 401k rules
- Individual 401k rules
- Solo 401k tax filing
- Self-directed 401k
- Solo 401k for self employed
- Solo 401k for business owners