Withdrawing $ to keep under $100k in solo plan....

[K-t-F]

A new soloK client asked an interesting question.... he asked "can I withdraw $ from my solo and deposit it into an IRA to keep the balance of the solo below $100k when it nears that limit for the purpose of qualifying for the 5500 filing exception" I told him it would be a premature distribution since the Solo would still be ongoing and receiving contributions. Comments?

[mbozek]

I dont know what the answer is but I dont know why he doesnt want to file a 5500-EZ- it takes about 5 minutes to prepare.

[Lynn Campbell]

It appears that if assets were less than $100,000 at the end of every plan year beginning on or after 1/1/94, you are exempt. The plan would have to permit the distribution in question, so check your documents.

[Mike Preston]

5 minutes to prepare? LOLOLOLOL. Well, I guess it depends on whether you want to answer the questions properly or not. Maybe 5 minutes is too long.

[Lynn Campbell]

This is what a client might say - it only takes 5 minutes - so the fee should be negligible - but in reality we know it usually takes a lot longer to gather the financial data, reconcile the assets, etc. Anyway I can certainly understand a client's motivation in avoiding the 5500 requirement for as long as possible, it avoids a possible random audit for one thing...

[mbozek]

I dont know what you think is complicated in filling out a 5500-EZ unless its a DB plan. It isnt rocket science.

[WDIK]

For starters, how about the fact that the instructions indicate that you don't report unrealized gains. What exactly are total distributions? You have to refer to the instructions. You cannot read the instructions and understand the form in 5 minutes.

Now someone familiar with the instructions who has all of the pertinent data in front of them probably could fill out a form properly in five minutes, but I don't have much confidence in someone doing it correctly without trained helped.

[K-t-F]

I agree with all the comments about the EZ... but...

You mean to tell me if a plan is ongoing and receiving contributions it is ok to make a contribution each year and when it reaches $95k take a dist and roll it into an IRA for the sole reason to reduce the balance and avoid filing a 5500... and then make more contributions after that? It would be like having an IRA with a $41k limit.

And... does anyone have a doc that states it can be done? Common sense tells me it can't... or have I lost all sense thinking too much

[Mike Preston]

If the plan allows for inservice distributions and if those inservice distributions are eligible rollovers, the course you describe sounds perfectly fine to me.

[K-t-F]

ahhhh.... as I said, I was thinking too much.

[Earl]

so you could stay exempt until the amount attributed to salary deferrals reaches $100k. Or the guy reaches 59 1/2 and rolls them too, I guess...

[jevd]

What about (if eligible for in service) take as much as he can & roll to IRA. Then start a SEP plan for employer contributions and leave only deferrals in K plan. That way the $ wouldn't add up as fast. ??