Self Directed 401K Plans

[Guest will]

Hi,

What is the best way to set up a self-directed solo 401K plan for a small business? My understanding is that self directed solo 401K can be setup as follows:

1) create EIN from IRS website as a tax-exempt Employer plan (401K)

2) adopt a set of IRS approved solo 401K plan documents

3) create and fund bank account under the name of the 401k trust

Am I missing any steps?

Who are the reputable providers to set this up?

Where can I get up-to-date IRS approved solo 401K plan documents?

[ESOP Guy]

If you are willing to be tied to a particular brokerage /investment house you can get the doucments from them. As part of the deal you will have to run the investments through them. If your bank has a business trust department even they will have the needed documents- once again they are going to want the investment business to make their money.

That is the cheap route and to some degree you get what you pay for.

I would advise you to talk to some local Third Party Administrators (your accountant should know some-- find them on the web). They will cost more but they will be able to help you steer clear of the pit falls and for a solo plan it shouldn't be too costly.

[K2retire]

An example of the potential headaches: I had a solo plan through a well known mutual fund house. They provided all the necessary documents for free. I calculated my own contributions and deposited them each year. When the assets reached the point that a form 5500-EZ was required, they said nothing. If I hadn't been working in the industry I would never have known about it.

[BG5150]

When the assets reached the point that a form 5500-EZ was required, they said nothing. If I hadn't been working in the industry I would never have known about it.

Nor would the government, right?

[chc93]

We have seen similar situations like this. One (not quite the same in this case), the plan was audited after the personal tax return was audited by the IRS and a deduction was questioned. Another (exact situation), somehow the IRS found that the EZ wasn't filed for 2010 and 2011 (assets less than $250K in prior years, but over beginning in 2010). Based on the first situation above, I assumed that this was probably "caught" on audit of the personal tax return. Plan sponsor filed 2010 and 2011 with explanation that no one told him, IRS accepted and no penaities. So, yes, the IRS can find out.

[K2retire]

When the assets reached the point that a form 5500-EZ was required, they said nothing. If I hadn't been working in the industry I would never have known about it.

Nor would the government, right?

Ironically, this was just before the limit went from $100,000 to $250,000 and the market went down. There was only one year I had to file before terminating the plan. But then again, had I not been in the industry I wouldn't have known to file a final return and the receiving IRA 5498 would have alerted the IRS.