QUESTION 1: What happens if we close the business or sell it, etc.?
ANSWER: Just like all 401k
plans, whether for the self-employed or for business with full-time employees, the
solo 401k would need to be formally closed with the IRS after the assets are
transferred to a self-directed IRA which we can assist you with.
Further, a 1099-R would
need to be issued to the IRS to report the transfer of the solo 401k assets to
the new self-directed IRA. Lastly, a
final Form 5500-EZ would need to be
filed with the IRS to report the termination of the solo 401k. The filing of
both of these tax forms is covered in our annual fee.
QUESTION 2: All of our funds would be in a brokerage account at Fidelity or
whoever we select, but we have the management authority and responsibility for
it?
ANSWER: That’s correct in that
the liquid funds would be held at a financial institution such as Fidelity or a
bank; however, as the solo 401k, you would make the investment decisions as
well as hold the documents in connection with the alternative investments
(e.g., real estate).
QUESTION 3: For solo 401k loans,
we work with you… ? How are the loan funds handled, it is a loan that as
to be paid back, are the funds disbursed from our account (subtracted from the
balance in the account), how does that work?
ANSWER: Yes we would prepare
the solo 401k loan documents and the loan proceeds would be wired from the solo
401k bank account or brokerage account to your personal bank account. Because
it is a solo 401k participant loan,
it is not deemed a distribution provided you timely make the loan payments.
Please visit following links to learn more about the solo 401k process and
rules.
QUESTION 4: For If we should need to withdraw money from the 401k we would
be subject to the 10% penalty and 20% taxes, etc., based on age,
etc.
How would this occur, we
execute the withdrawal, and obviously report the transaction, compliance, etc.?
ANSWER: Correct in that taxes, and early distribution penalties
would apply if you are under age 59 ½ at the time of the distribution. Click here to learn more about the solo
401k distribution rules.
I appreciate your insight,
Jeff in South Carolina
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