Control Group Rules for Independent Contractor Solo 401k

BACKGROUND: Let's be specific so that we are definitely clear on the controlled group rules.

I'm a doctor and I have a medical practice with 10 employees. 

I am going to be an independent contractor for another medical practice at which I will have no ownership or control. 

Thus I get two paychecks - 1) W2 from my medical practice  2) a pretax sum from the independent contractor work

QUESTION: However, if I were to open up the solo 401k, I would be doing it as the independent contractor/sole proprietor.  Reading over these controlled group rules, would I be excluded because I am 100% owner of my medical practice corporation and a 100% owner of my own sole proprietorship that provides services to the other medical practice (even though I am 0% owner of the other medical practice)?

ANSWER: You would need to be deemed a contractor not a sole proprietor.  Reason being, sole proprietors are not excluded from the controlled group rules for solo 401k establishment purpose.

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.