5500EZ questions

[Guest Zman]

Hi,

My wife is a S-corp and our Financial advisors setup a Solo 401K and deposited $15500 in the account in Dec 08 and I am in the process of adding $6k to max it out. They offered to setup a TPA but asked them whether it was necessary as I did not think having a yearly $400 charge was a good idea and said I could fill up the info myself. I have a couple of questions.

1) Do I need to file a 5500EZ? I looked at the instructions for filing it and the section on "who might not have to file" it is not needed if total assets (I am assuming this is the value of the 401K) is less than $250K.

2) For sole proprietors the deadline for funding the 401k is up until the April 15 deadline or Oct 15 if an extension was filed, but the instructions said it is just at a later date for S-corps. What is the deadline for funding it?

3) Do I need a TPA?

Thanks

[rcline46]

In return, I pose the following questions:

Why are you limiting yourself to 401(k) + Catch up? YOu can also do profit sharing up to the lessor of 25% of her w-2 pay or $30,500. All Solo-K plans should permit this. If not it is a bad plan.

Did your 'Financial Advisors' tell you about the additional amounts? Most 'Financial Advisors' are merely investment brokers who know nothing about qualified plans. They have prototype documents in their pockets but do not understand them.

I am assuming your wife has no W-2 employees - is this correct?

Who is going to make sure your plan is kept current with all required amendments?

If you are not going to hire a professional to monitor your plan, why did you hire a professional to monitor your investments?

[Guest Zman]

In return, I pose the following questions:

Why are you limiting yourself to 401(k) + Catch up? YOu can also do profit sharing up to the lessor of 25% of her w-2 pay or $30,500. All Solo-K plans should permit this. If not it is a bad plan.

Did your 'Financial Advisors' tell you about the additional amounts? Most 'Financial Advisors' are merely investment brokers who know nothing about qualified plans. They have prototype documents in their pockets but do not understand them.

I am assuming your wife has no W-2 employees - is this correct?

Who is going to make sure your plan is kept current with all required amendments?

If you are not going to hire a professional to monitor your plan, why did you hire a professional to monitor your investments?

I was aware of that. We are not fully funding her 401(k).

Correct. She has no employees.

My reasoning at this time is that she incorporated last year and will probably stop working in a couple of years. I don't have a problem hiring a professional, but considering the funds in the 401(K) vs the cost of almost 2% I wanted to investigate whether this was worth doing if I did not have a need to file a 5500ez.

I am new at this as we just got married and I am working on figuring things out

Thanks

[rcline46]

There is nothing which prevents you from following the instructions to file the proper Form 5500-EZ (or not).

The plan document is trickier, as you will have to monitor the document provider to make sure your document is always up to date. It is often quite difficult to determine what amendments are needed when, and if you are terminating a plan, what amendments become accelerated.

Since the plan is expected to have a short life and you are not maximizing the deductions, one would be curious as to the actual advantage of the plan vs. tax exempt investments. However, that is between you and your financial advisors.

[K2retire]

Keeping the document up to date is crucial. Some document providers are very good at it. Others will not do it without a retainer. Ask them now before it becomes a problem.

Although you won't have to file a 5500EZ for an ongoing plan until the assets exceed $250,000, many people forget that you must file a final return regardless of the assets in the year the plan is terminated and paid out.

[R. Butler]

1. Is the S-Corp. a member of a related group? Does she own other businesses? Do you own a business?

2. The funding deadline for employer contributions is the due date of the employer's federal tax return including all valid extensions.

3. I would recommend that you get a tpa. You are asking fairly basic questions. Do you really want to spend the time to learn the applicable rules and regulations?

[Below Ground]

Zman:

1) Since trust appears to be below $250K, probably not. Of course, there are other criteria. For example, do you have ownership in another firm that could result in a controlled group?

2) W-2 Employees, which is what you have with an S-Corp, have a deadline on deferrals of 1/15; meaning, that deadline is long gone for 2008. Of course, if you are NOT trying to maximize benefits, funding employer contribution is more valuable given the "exemption" from payroll taxation; which does not apply to deferrals. (Perhaps use of salary deferrals is not right for you this year?) Oh yeah, your owner distributions (S Dividends) are not compensation for plan purposes. Be sure to keep that in mind.

3) There is no law that says you must use a TPA. However, it looks like you have quite a few questions. This is somewhat like when you are sick, the law does not say you must go to a doctor. Of course, having a doctor's insights could literally prove to be life saving. (Who knew it was bird flu?) Mess up with this Plan and I suspect that the $400 will seem to be a real bargain.

Penny wise and pound foolish? You decide. Good luck.