Contribute to KEOGH and Solo 401k Roth

BACKGROUND: Until year 2012 I had a long-standing Keogh account, but closed it in December of 2012.

March 2013 I contributed $20,000 to my solo 401k (Roth) checkbook control account with Fidelity (which you helped me set up). Same month I invested that money in a fund.

QUESTION: I believe that because of my Keogh account I am not allowed to apply that contribution to year 2012, but instead must apply it to year 2013. Is this correct?

ANSWER: First, I’m not sure how you will be able to deposit funds into an account that has already been closed.  

Assuming the KEOGH has not yet been closed, did you maximize your 2012 employee contribution amount of $17,000 to the KEOGH? If not, you can apply it as Roth Solo 401k contribution. Further, if you are aged 50 or older, you can apply the $5,500 catchup amount to the Roth Solo 401k as well, assuming you did not apply it to the KEOGH already. As you can see the key is not exceed the annual contributions between all qualified plans combined. See IRS Publication 560 for more information regarding contributing to multiple retirement plans.

Thank you for your assistance,

Max in Iowa

How to formally terminate or close a Solo 401k or Individual 401k

If the funds or assets are transferred/directly rolled over to another 401k, or to a self-directed IRA

1.     Issue 1099-R to the IRS to report the direct rollover of the solo 401k to the IRA (prepared by the solo 401k provider in January or February of the year following the plan closure  and mailed to the IRS, with a copy to the solo 401k trustee for filing with his or her tax return).

Compliance Note 1: The transfer of the solo 401k or Individual 401k is reported on form 1099-R using code “G” which communicates to the IRS that the funds and/or assets were transferred to another qualified plan or IRA. If any code other than “G” is reflected, contact the solo 401k provider immediately to avoid adverse tax consequences.

Compliance Note 2: If the solo 401k funds and/or assets are directly rolled over to another qualified plan such as a 401k,or an IRA, the tax payer will need to also report the transfer or direct rollover on Form 1040 (personal tax return) lines 16a and 16b. Enter the amount transferred on line 16a and on line 16b write “0”.

2.     Issue Final Form 5500 EZ to the IRS to formally close/terminate the solo 401k plan (prepared by the solo 401k provider by  July of the year following the plan closure/termination and e-mailed or mailed to solo 401k trustee for signature and submission to the IRS)

3.     If applicable, prepare assignments to move the real estate or any other alternative investments to the  receiving IRA, or 401k.

Restate Vanguard Solo 401k to Self-Directed Solo 401k

I am interested in purchasing a 10-acre piece of raw land in Montana but don't want to borrow or to tap my investment accounts because that would trigger tax bills.

QUESTION 1: I have a solo 401(k) at Vanguard with enough assets for this purchase. Can I transfer that to a solo 401(k) with you to buy this plot?

ANSWER: Yes you can transfer your current Vanguard Solo 401k to a self-directed solo 401k for investing in alternative investments such as raw land provided you are still self-employed and have no full-time employees.

QUESTION 2: How is that done? What are the fees?

ANSWER: To invest the existing Vanguard solo 401k plan in vacant land or other alternative investments such as precious metals, notes, tax liens, and private company shares, the existing Vanguard solo 401k plan will need to be restated to a self-directed solo 401k with a solo 401k plan document sponsor such as our company whose solo 401k plan document allows for alternative investments.  

Here is how the Vanguard Solo 401k restatement process works:

Because you already have solo 401k, we just need to restate the plan, so a final Form 5500-EZ will not apply. Instead, you are simply changing solo 401k plan providers. To restate the solo 401k, we need the original effective date of the Vanguard solo 401k plan, which is listed on the initial Vanguard solo 401k opening documents. We also need to know the name of the solo 401k plan. Lastly, you would need to complete the rest of the steps listed on our solo 401k sign-up page or give us a call and we can walk you through the process.  Lastly, visit solo 401k pricing to learn about the solo 401k fees.

QUESTION 3: Also, would there be restrictions on my use of the land? Could I build a home or cabin and use it myself?

ANSWER: While a self-directed solo 401k may invest in land that is subsequently developed, you could not use the land or the developed property for your personal use as it would be a violation of the prohibited transaction rules—specifically the following rule:

Furnishing of goods, services, or facilities between a Solo 401k plan and disqualified person. Click here for a full list of the solo 401k prohibited transaction rules.

Reason being, you are a disqualified party because you are the solo 401k owner and, therefore, may not personally benefit from any of your solo 401k assets including land that is developed.  

Thanks in advance, Larry in Montana