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5500EZ 5500SF


mjf06241972

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16 hours ago, mjf06241972 said:

I have a solo 401k plan that now has employees.  The solo plan has filed Form 5500-EZ for past several years.  Can I transition the tax return automatically to the 5500SF since they now have employees or do I have to do anything with the 5500-EZ?  Thank you.

And, just to make the point, there is NO SUCH THING as a "solo" 401(k) plan.  It is a marketing gimmick, not a type of plan.  And because it was set up under that type of situation, it is probably also not the appropriate design for this client.  "Do it yourself brain surgery".

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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On 9/27/2018 at 12:31 PM, mjf06241972 said:

I have a solo 401k plan that now has employees.  The solo plan has filed Form 5500-EZ for past several years.  Can I transition the tax return automatically to the 5500SF since they now have employees or do I have to do anything with the 5500-EZ?  Thank you.

You probably already know this, but just in case--- Once the company has common law employees that are eligible to participant in the plan, the employer is no longer eligible for a Solo-k plan. As such, the plan has to be amended under a regular 401(k) adoption agreement & plan document.

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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10 hours ago, Larry Starr said:

And, just to make the point, there is NO SUCH THING as a "solo" 401(k) plan.  It is a marketing gimmick, not a type of plan.  And because it was set up under that type of situation, it is probably also not the appropriate design for this client.  "Do it yourself brain surgery".

Agreed the so-called solo 401k market is a compliance disaster.  We run into several cases where no one is paying attention to the reporting requirements when assets cross the 250k mark, owners' children are hired, common law employees are hired, controlled group rules, aggregation of 402(g) limit, plan termination reporting requirements, 415(c) violations, successor plan rules, and on and on ... save money on annual administration fees and use that to pay for costly corrections!

PensionPro, CPC, TGPC

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On 9/28/2018 at 3:04 PM, Appleby said:

You probably already know this, but just in case--- Once the company has common law employees that are eligible to participant in the plan, the employer is no longer eligible for a Solo-k plan. As such, the plan has to be amended under a regular 401(k) adoption agreement & plan document.

Part of the problem is comments  like this from our own industry.  It implies that there is such a thing as a "solo 401(k) plan" when there absolutely isn't.  If you have a SEP and start a profit sharing plan in the middle of the year, you are no longer eligible, and that is a legal proscription.  There is no equivalent for a "solo k" because it is a made up term.  What it is (as most of us know) is a severely crippled plan design/document that blows up when employer conditions change.  How many employers who have adopted such an animal "think" that it is not even possible for other employees to come into the plan because.... wait for it... it is a a SOLO plan and by definition that means only "ME"! Our industry is its own worst enemy sometimes.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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1 hour ago, Larry Starr said:

Part of the problem is comments  like this from our own industry.  It implies that there is such a thing as a "solo 401(k) plan" when there absolutely isn't.  If you have a SEP and start a profit sharing plan in the middle of the year, you are no longer eligible, and that is a legal proscription.  There is no equivalent for a "solo k" because it is a made up term.  What it is (as most of us know) is a severely crippled plan design/document that blows up when employer conditions change.  How many employers who have adopted such an animal "think" that it is not even possible for other employees to come into the plan because.... wait for it... it is a a SOLO plan and by definition that means only "ME"! Our industry is its own worst enemy sometimes.

I agree 100%.  

 

 

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I've been fighting with so-called "consultants" (I refuse to say "experts", even though many of them claim to be) over "solo 401(k)", and that's just the tip of the iceberg.

One in particular (no names) really pisses me off. He had a customer a couple of months ago, about 40-41, comp around $225K, and the most he could afford to put away was under $40K (I don't recall exactly how much he ended up contributing, but it was even less than that). I told him that he had absolutely zero use for a 401(k) plan -- "solo" or otherwise -- and could do everything he could possibly need with a straight discretionary profit sharing plan. The only thing a 401(k) could possibly do for him would be to get him the extra $6K from the catch-up -- which he couldn't use anyway. So all that he was doing was paying extra admin fees so that someone could do unnecessary administration and recordkeeping.

When he went back to the "solo 401(k)" provider, the guy hit the ceiling. Phoned me, called me every name in the book, told me I didn't know anything, I should be sued for malpractice, blah, blah, blah. And this guy is actually dealing with poor schlubs (or rich schlubs) who think they're getting something for their money. Even if he has one with earned income over $275K who does want to contribute over $55K, who can therefore get something out of a 401(k) feature, I don't know if that person is paying more for the solo(k) than he's making by being able to contribute the extra $6K. I'd like to see those numbers, but we never will. 

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2 minutes ago, jashendorf said:

I've been fighting with so-called "consultants" (I refuse to say "experts", even though many of them claim to be) over "solo 401(k)", and that's just the tip of the iceberg.

One in particular (no names) really pisses me off. He had a customer a couple of months ago, about 40-41, comp around $225K, and the most he could afford to put away was under $40K (I don't recall exactly how much he ended up contributing, but it was even less than that). I told him that he had absolutely zero use for a 401(k) plan -- "solo" or otherwise -- and could do everything he could possibly need with a straight discretionary profit sharing plan. The only thing a 401(k) could possibly do for him would be to get him the extra $6K from the catch-up -- which he couldn't use anyway. So all that he was doing was paying extra admin fees so that someone could do unnecessary administration and recordkeeping.

When he went back to the "solo 401(k)" provider, the guy hit the ceiling. Phoned me, called me every name in the book, told me I didn't know anything, I should be sued for malpractice, blah, blah, blah. And this guy is actually dealing with poor schlubs (or rich schlubs) who think they're getting something for their money. Even if he has one with earned income over $275K who does want to contribute over $55K, who can therefore get something out of a 401(k) feature, I don't know if that person is paying more for the solo(k) than he's making by being able to contribute the extra $6K. I'd like to see those numbers, but we never will. 

While I understand your frustration, we would absolutely set this plan up as a 401(k), only because there is no extra cost in our operation to do so and there might be a year where his income drops significantly so the ability to defer up to the max instead of treating it as a employer contribution and the limits attached to that might be helpful.  That is the essence of flexibility of design that organizations that know what they are doing bring to the game.  I agree if there was a significant "upcharge" for such a plan that it becomes questionable, but I find it hard to justify any additional cost for a one man 401(k) where the individual defers.  It's even easier if the entity is not incorporated because then we can split the contribution (made during the year) any way we want (as employer contribution or 401(k) deferral) that best meets the client needs.  We do this all the time.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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On 10/1/2018 at 7:06 AM, Larry Starr said:

Part of the problem is comments  like this from our own industry.  It implies that there is such a thing as a "solo 401(k) plan" when there absolutely isn't.  If you have a SEP and start a profit sharing plan in the middle of the year, you are no longer eligible, and that is a legal proscription.  There is no equivalent for a "solo k" because it is a made up term.  What it is (as most of us know) is a severely crippled plan design/document that blows up when employer conditions change.  How many employers who have adopted such an animal "think" that it is not even possible for other employees to come into the plan because.... wait for it... it is a a SOLO plan and by definition that means only "ME"! Our industry is its own worst enemy sometimes.

The fact is, companies are marketing a trimmed down version of the 401(k) using these brand names. Yes, it is just a 401(k). But, when a product is labelled as a Solo-K/Individual-k etc., one knows then, that it is established with a shortened form of an adoption agreement, and there is no nondiscrimination/top-heavy testing.

Why stand there arguing that there is no such thing as a Solo-K, when the customer has a product in hand, labeled as such?

Sometimes- it is important to speak the language of the vendor and the end-user, so that one can respond accordingly- as long as the end results are in compliance with the governing regulations.

If you know what the other party means, you can guide them appropriately.

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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On 9/29/2018 at 11:25 AM, RatherBeGolfing said:

From the SF instructions

Line B - Box for First Return/Report. top Check this box if an annual return/report has not been previously filed for this plan. For the purpose of completing this box, the Form 5500-EZ is not considered an annual return/report.

I'm going off on a tangent here, but the instructions do later say that if there are still assets and participants, then you don't mark the box as the final return - such as the case if you've got a plan that has become eligible to file a 5500-EZ instead in the future (like a sole prop who previously had employees in his plan but there are none anymore).

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3 minutes ago, Bri said:

I'm going off on a tangent here, but the instructions do later say that if there are still assets and participants, then you don't mark the box as the final return - such as the case if you've got a plan that has become eligible to file a 5500-EZ instead in the future (like a sole prop who previously had employees in his plan but there are none anymore).

In the case where it goes from an EZ to a first SF, no annual return has been filed.  In the case where it goes from an SF to EZ, its not a final return because future returns may still be filed.  

 

 

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On 10/7/2018 at 2:28 PM, Appleby said:

The fact is, companies are marketing a trimmed down version of the 401(k) using these brand names. Yes, it is just a 401(k). But, when a product is labelled as a Solo-K/Individual-k etc., one knows then, that it is established with a shortened form of an adoption agreement, and there is no nondiscrimination/top-heavy testing.

 

Why stand there arguing that there is no such thing as a Solo-K, when the customer has a product in hand, labeled as such?

 

Sometimes- it is important to speak the language of the vendor and the end-user, so that one can respond accordingly- as long as the end results are in compliance with the governing regulations.

 

If you know what the other party means, you can guide them appropriately.

 

"There's no such thing as a Solo K; it's a marketing gimmick  to sell you a crippled plan". That has more power than NOT telling the client.  Plus, the client (at least my clients) NEED to know that they are not getting what they have been told.  Of course, we don't have "customers"; we have clients.  Long ago I wrote an article in the Journal of Pension Benefits called "Clients Or Customers: Never the Twain Shall Meet".  I've attached it here.  If you want an idea of what I'm about, go ahead and read it.

Clients or Customers.pdf

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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