Is Solo 401k subject to IRS audit?

Just like any other type of retirement plan, Solo 401k is subject to IRS audit. The IRS examiner's primary objective is to determine whether the form and operations of the Solo 401k plan are in accordance with:

• The Solo 401k qualification rules set forth in the code, and
• the terms of the Solo 401k document.

In addition, IRS examiners will consider whether the plan has engaged in any prohibited transactions and whether the plan's books and records are concerned with protecting the government's interests as well as the interests of the plan's participants.

Further, whether the business is actually active and if both participants are contributing to Solo 401k that they are actually working for the employer.

Whether the employer's deductions for Solo 401k plan contributions are within the limits set by the code Section 404;

Whether the Solo 401k plan assets are held in trust and are properly titled; hence why it’s important to open Solo 401k checking account(s) in the name of the Solo 401k, not your personal name;

Whether the Solo 401k plan assets, income and loss are being properly accounted for; and whether the plan engaged in any prohibited transactions under code Section 4975 (c);

Whether the Solo 401k is continuing to use the Solo 401k providers prototype plan document.