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Is it imperative to have a TRUST EIN?


Lori H

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I have always been under the impression that every trust of a qualified plan needs its own EIN for deposits and distributions. Now I am not so sure. My experience is that after several years of inactivity, a trust EIN is no longer valid. What are your opinions?

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It is also my understanding that each trust is required to have a distinct EIN. I have seen many plans that use either the plan sponsor's or a service provider's EIN, but I don't believe that is what should happen.

A few years ago (around 2004 or so) the IRS decided to inactivate a bunch of EINs that hadn't been used in several years. Unfortunately, filing a 5500, Schedule P was not sufficient to prevent that from happening. Supposedly they have stopped doing that now, and you can have the old ones reactivated as needed.

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There is no requirement to have a separate EIN for the Qualified Plan. I used to do it religiously. But not any more... too many of my EINs were frozen. The IRS said they have stopped that on 2 separate occasions.

Now if I am using a 401(k) platform such as John Hancock or Transamerica or American Funds direct, I do not bother applying. They do all of the withholding using their EIN anyway.

I still do apply for an EIN if any other investment type is used. ...and I make certain the investments are titled in that name and EIN. By having a separate EIN from the employer, we are in much better shape if someone accidentally sends a 1099 showing investment gains. This has happened a few times even though it is obviously a tax exempt Plan.

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  • 1 month later...

so... If I apply for an EIN for a plan and when the plan opens an investment account at some brokerage house and uses that EIN when opening the account, will that keep the EIN alive? If the plan doesnt have it's own EIN the businesses EIN is used?

What if the plan sponsor is a sole proprietor... and doesnt have an EIN but uses their SS#. The form 5500EZ (usually a solo plan) does not allow a SS#... what then?

Its not easy being green

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PATA

"If I apply for an EIN for a plan and when the plan opens an investment account at some brokerage house and uses that EIN when opening the account, "

This is the way I like to do it. This way if someone sends a wrong 1099, no one's tax return is messed up.

As for this keeping the number alive with the IRS, no, The only certain way to keep the number alive is to pay taxes (Form 945) with this EIN......but I still think it is worth doing.

Also, the IRS has stopped freezing numbers.....or so I have heard.

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so... If I apply for an EIN for a plan and when the plan opens an investment account at some brokerage house and uses that EIN when opening the account, will that keep the EIN alive? If the plan doesnt have it's own EIN the businesses EIN is used?

What if the plan sponsor is a sole proprietor... and doesnt have an EIN but uses their SS#. The form 5500EZ (usually a solo plan) does not allow a SS#... what then?

Using an EIN on an investment account will not keep it alive. IRS reporting is what keeps it alive (945 or 1099-R...actually, it may only be withholding [945]; I'm not sure).

You just have to get an EIN for the business if it sponsors a plan.

If the plan is opening a regular brokerage or similar account, I will always get an EIN for the plan. If it's going to use a platform, then maybe not, but even then, we're probably going to get one anyway.

Ed Snyder

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It was my understaning that the pension trust is its own animal... by obtaining an EIN for it you have protected any other entity that the sponsoring entity may have from being mixed up with the plan. Also, when a participant terminates or retires and is paid out, you dont want the 1099R to be associated with the plan sponsor.... it is not the plan sponsor who is distributing funds to the terminated participant, it is the plan which is identified by the EIN on the 1099R.

I have to admit that many of my plans are so small that I maybe generate a handful of 1099s a year (lucky me). Small closely held businesses with little turnover in their workforce. Im afraid that if EINs were frozen due to inactivity then when a 1099 is generated it may not be, um... recognized??? I have not seen any fallout as of today with that issue... hopefully I never will.

As for the sole prop. who uses a SS# on their schedule C and who sponsors a plan, I tell them they need an EIN once the form 5500EZ is needed and that maybe now is a good a time as any to get an EIN and switch over... unfortunately, I am often out-ranked by the CPA and it is not done.

Its not easy being green

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  • 1 month later...
Guest Seattle-Res

I am amongst the confused. I set up a self directed 401k Plan and a Plan trustee. My greatest fear was that someone would send me a 1099 and then we would be fighting the exempt issue for months. When I wanted to set up a Brokerage account, they wanted an EIN number that was different than my ssn or my business. So, I set up an EIN for the 401k Plan (NOT the Trust) supposedly both the plan and the trust can use the same EIN, I just chose to get the EIN in the name of the Plan.......the 401k haa numerous buys in to LLC's where my "Plan" gets a K1 issued to it, not to mention dividends and interest. So by haing the Plan have its own EIN, I believe that I have avoided the whole 1099 issue. Now I am worried that years down the road, this could cause a problem becaues the EIN was NOT issued to the Trust name. Any thoughts ?

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In my post above I was using the word plan where others might use the word trust. I have never worked on a plan with a separate trust though I have heard of them.

More to the point: I have always applied for the EIN in the name of the Plan. I think you did it right.

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Seattle-Res, most plans are (I think) set up as a "plan and trust" and are typically referred to as the "plan." If the brokerage firm set up the account properly - and that's never a given - then they will suppress 1099 reporting, and it wouldn't matter if you used your business id number, or your own SS number for that matter, at least for purposes of having income improperly reported to the IRS. But it's generally best to have a separate ID number for the plan and trust, and you do, so no worries.

Ed Snyder

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Relevant to the current economy: having a separate EIN for plan assets is one way to help prove they are not employer assets if the employer declares bankruptcy.

Excellent point about being able to prove the separation of assets. I concur with those who favor always applying for a separate EIN for the trust. It's good form.

Thank you.

pj

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Well, it's certainly going to be cleaner to use the correct id number, but I wouldn't be too worried about using a wrong (company) id number on a plan account and having that account treated as a business account. It's the titling that matters.

Ed Snyder

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Relevant to the current economy: having a separate EIN for plan assets is one way to help prove they are not employer assets if the employer declares bankruptcy.

Excellent point about being able to prove the separation of assets. I concur with those who favor always applying for a separate EIN for the trust. It's good form.

Indeed. I remember a story maybe 15 yrs ago of a plan sponsor who got in arrears with IRS, eventually the IRS levied the employer's bank accounts. Their plan had an account under the employer's EIN, and the IRS levy was executed based on EIN - adios plan money! Good luck getting something like this sorted.

I'm addicted to placebos. I could quit, but it wouldn't matter.

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Indeed. I remember a story maybe 15 yrs ago of a plan sponsor who got in arrears with IRS, eventually the IRS levied the employer's bank accounts. Their plan had an account under the employer's EIN, and the IRS levy was executed based on EIN - adios plan money! Good luck getting something like this sorted.

Wow. I hadn't thought of an IRS levy; point taken.

Ed Snyder

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