Solo 401k plan closed issue

[jsmith1985]

I had opened 3 Self-Employed 401K plans - Fidelity, T.Rowe price and E-Trade.

I never put any money in E-Trade and they closed account after a couple of years due to inactivity. Do I need to file 5500 for this account now?

I put some money in T. Rowe and after a couple of years, I transferred all funds to Fidelity 401k account. Do I need to file 5500 for this account as well?

At each stage, the total assets were less than 250K combined.

Thanks,

[QDROphile]

Do you think you have three plans or one plan with assets held with three custodians?

[jsmith1985]

I think that is the essence of the question.

If I as a Sole Proprietor set up the plans with 3 custodians, with different plan numbers, then would they be considered different plans?

If so, then would each plan have to have over 250K in assets to file 5500 or combined across all plans have to be over 250K?

[Lou S.]

I'm not sure why you would set up 3 plans with 3 different custodians with 3 different plan numbers but yes in that case you probably do have 3 plans. Why not just merge them into 1 plan?

[Bird]

The $250K limit is combined across plans, so you don't have to file based on the amount of assets. However...you are supposed to file a return in the final year of the plan, no matter what the assets are, so if indeed you have/had three different plans with different plan numbers, you should be filing for the T. Rowe Price plan, if it was closed in 2013. Does anyone check on such things? I doubt it, but I'm giving you the rules. (I don't think I'd worry at all about a plan that never had any assets.)

Oh, and by the way, if you closed things out midway through 2013, the due date for that return would be 7 months after the end of the month of the final distribution of assets (plus 2 1/2 months if properly extended).

[jsmith1985]

How do you merge different plans into one?

I just asked the custodians that I wanted to open a Solo 401k plans and they asked me to submit the paperwork. Had no idea that I was creating multiple plans, which was not my intention anyhow.

[Lou S.]

Typically you hire someone to do it.

Sometimes do it yourself to save money can have unintended and potentially costly results.

[jsmith1985]

well, right now is the time to fix all errors since there is a penalty-free period from IRS for all prior 5500. Isn't it?

[jsmith1985]

But the question that still remains is -

For Sole Proprietors/Self Employed people who open and Individual 401k plan at multiple places - say Fidelity and Vanguard. I got their paperwork and submitted them.

Could I have named plan in the two paperwork as same - 001?

Are they not considered different plans?

Or are they part of same plan with different custodians?

If so then what do I tell Fidelity and Vanguard to change in their paperwork to signify that?

[QDROphile]

"For Sole Proprietors/Self Employed people who open and Individual 401k plan at multiple places" there is a prize for acting on the basis of some knowledge and jargon and too little understanding. You seem to have won it, but now you do not know what to do with it. When you ask a purveyor to sell you a product, that is what you get, few questions asked. You should have asked for help in figuring out what you needed and wanted. Sorry for the lack of compassion, but what you did is so incredible that it seems like it is not simply naive -- something you were seeking sent you on the path to trouble. You did something extraordinary and complex and now you plead simplicity.

[jsmith1985]

Well, considering that people like myself have expertise other than setting up 401k plans, I was relying on information being provided by Fidelity and Vanguard. Why would I doubt the information that they provided?

What is so extraordinary and complex about having more than 1 plan? What do you think are the implications considering that they are 1-participant, self-employed plan?

[Bird]

But QDROphile, Vanguard and Fidelity and others of their ilk are the ones who make it sound so easy.

jsmith, I understand where you are coming from. It didn't seem like a big deal at the time, and, well, it isn't that big of a deal, except that there are a lot of little details that can lead to hassles, at the least. Did you file one return or two, and was the return for a plan that no longer exists? (And did you file it late - today?)

[jsmith1985]

I've filed for Fidelity online yesterday.

I've not done anything yet for T.Rowe and E-Trade.

E-Trade - I never had any transaction

T.Rowe - closed in 2012 after transferring to Fidelity.

Hence, will be filing 5500-EZ for both under 'penalty-free' option that is valid till next year - I forget the exact date.

And you are right. Fidelity and Vanguard knew that I had more than one 401k plan but neither of them said anything about this being a hassle.

And I still, maybe due to lack of understanding, am not sure why having more than one plan is that cumbersome. All I see is that I have to file separate 5500-EZ with same information except the balances and contributions. What am I missing here?

[Lou S.]

Well, considering that people like myself have expertise other than setting up 401k plans, I was relying on information being provided by Fidelity and Vanguard. Why would I doubt the information that they provided?

What is so extraordinary and complex about having more than 1 plan? What do you think are the implications considering that they are 1-participant, self-employed plan?

You mean other than having to maintain multiple plan documents each of which has to be timely amended for IRS tax law changes and having to file a separate Form 5500 for each plan?

If you want to open up accounts at multiple places you'd probably be better off hiring a TPA to give you one plan document and allow you to open up investment accounts where ever you want or to establish a SEP which doesn't have the same kind of reporting and document update requirements (though you might have a considerably lower limit on contributions if your pay is lower than the max and you are trying to make the largest contribution possible.)

Typically the documents from Fidelity, Vanguard, et al require you keep all of your funds with that vendor.

[jsmith1985]

I have a colleague who is in a similar situation (we opened accounts together). Except in his case his accounts are in Fidelity,Vanguard and Ameri-Trade.

He has submitted multiple 5500-SF returns one each for Fidelity and Vanguard yesterday.

His situation with AmeriTrade is same as mine in E-Trade. Never funded and the company E-Trade closed the account, not him due to inactivity.

[jsmith1985]

Lou,

As far as documentation is concerned, Fidelity, T.Rowe etc have sent Plan Documents and they are the ones who keep updating them. I just collect and keep them in a folder. And yes you are right, they send plan changes documents as well but it wasn't as difficult because they needed the same information. But yes, it is indeed a hassle to fill in multiple documents, no question about it.

Perhaps the most effective way would have been to go through a TPA as you have also mentioned. However, it is what it is now, I can't go back in time and change it. I can only wish that Fidelity, T.Rowe etc. would provide us with accurate information since I was upfront with them about opening multiple accounts.

Forcing all funds to keep within the group is really what prompted to look at opening multiple accounts.

So, I guess in the end, the question remains - For T.Rowe account that was closed in 2012 and one which was funded, do I need to submit a 5500-EZ under penalty free filing for final year of plan.

Should I submit another one for E-Trade account which was never funded?

After this, I would have only ONE account and that is with Fidelity, So I'll be good and conform to standards.

But I mentioned about my colleague (yes, we exchanged information on how to set things up) who has funds in both Fidelity and Vanguard (and his AmeriTrade situations is similar to E-Trade of mine) and he has submitted two 5500-SF online. I guess he will have to keep documents from both places and keep submitting 2 5500-SF for a long time.

Hassle sure I get it but am not sure I'd classify it as "extraordinary and cumbersome" and I was trying to find out if there was something else that I was missing.

[Bird]

I wouldn't bother filing for a plan that never had any money. If you want to do things "right" then yes, you should file for the plan that effectively terminated in 2012; it should be covered under the program. There's little to no risk of getting "caught" for not filing but you've gone this far and might as well.

Here's the thing - in today's US of A, you commit crimes every day, just because there are so many laws and regulations. This community operates in one of the more remote outposts of that regulated world, and we are unusually uptight about silly stuff that other folks have no understanding of or interest in. I mean, there are posts about whether it is necessary to refund $0.83 due to a failed test...a test which, by the way, if never done, would have about a .5% chance of being caught, but I digress. You are probably doing 10 or 20 things wrong with your plans. Frankly, it can get a little frustrating to us because it's a lot easier to do things right than it is to fix them after they're f-ed up, and they get f-ed up because Fidelity et al lead you to believe that it is easy. Most of us have clients in exactly your situation that pay us to negotiate the maze, and keep out of trouble, and now we're helping you, for free.

(But - if you had never even thought of filing a 5500 tax return, and terminated your plans, and quietly went on with your life, nothing would happen.)

I don't have any idea if there is a coherent point to all that, but good luck.

[Mike Preston]

Belt and suspenders says file a series of 5500's for each year that any plan, even the 0-asset plan, was in existence. With the IRS Pilot Program described in Revenue Procedure 2014-32 there is no downside. Chance of the IRS doing something to you should you *not* file is low, but why take even a low chance?

How did you arrange for the transfer from the T Rowe to Fidelity? What paperwork did you fill out? Did you ever formally terminate the plan or are you just pretending that the plan was terminated because the underlying investment account was emptied and closed?

[jsmith1985]

Mike - I just asked T.Rowe to transfer funds and close account. I'm assuming that this also closed the plan. Do not know if they asked me to submit any other paperwork apart from funds transfer papers.

[jsmith1985]

Bird - I think the point being missed here is

- It might not be preferable to have multiple plans (that I ended up) because of the hassle of filing multiple 5500 and multiple plan changes documents.

I'm still trying to figure if having multiple plans is disallowed, If it is allowed to have multiple plans then no-one has mentioned anything, apart from the above, as a reason not to do it.

I understand what you say regarding rules and laws and agree many people break something or other every day. Seen too many people rent rooms and never disclose the rental income. Happens all the time.

[Mike Preston]

Well, you might want to ask T Rowe whether they have a formal procedure for terminating a plan and, more to the point, whether you effectively did so. Belt, suspenders and quarantine suggest that you do the same with your stillborne plan.

As to whether it is problematic to have multiple plans at once nobody can answer that without reviewing the documents you signed. It is not a problem, theoretically, to have one plan sponsor have multiple plans. But my guess is that the type of plan you signed has provisions in the base document that are, indeed, problematic.

My guess is that you have a pair of plans that, because of their provisions, are no longer qualified and the only way to get this cluster-{censored} back on track is to submit the whole thing to the IRS in what is known as an EPCRS submission.

Now, most folks in your position, once they hear that, will do their best ostrich imitation because a submission under EPCRS is likely to be pricey.

And the likelihood of having the IRS discover the problem is low. However, I'm not comfortable giving advice that turns on the likelihood of discovery.

I'm probably not your favorite person right now.

[jsmith1985]

Mike - since it your guess that the plans are not qualified because of their provisions, we cannot be sure of that.

So, I think it is better to leave things as is. Would file 5500-EZ for T.Rowe plan that was closed and now I'll be with only one plan.

Like Bird said, in our rule-driven (excessive rule), one is bound to be breaking some rule or the other. If your expertise is benefits plans then I'm sure you're breaking rules that govern some other facet of your life. So, one tends to do the best that one can do.

I was a bit concerned about my colleague who has 2 plans and who is filing two 5500-SF forms and would advise him to consolidate the plans, perhaps transfer to one plan and that is it. If there are issues at that time then he'll have to deal then I guess.

Finally, I'll still like you even if I disagree with you .

One can disagree without being disagreeable.

[Mike Preston]

One can, I can, and, apparently you can. Refreshing. If you are going to give your friend advice, at least give him good advice: he shouldn't just transfer from one plan to the other and consider the act of transferring the assets as meeting the technical definition of plan obliteration (note I did not use the term "termination" because an equally valid course of action is to formally merge the plans - either termination or merger satisfies the IRS as to stopping the requirement for continued 5500's). He should ask the folks he wants to empty what the formal process is they have for effecting a termination or he should ask the folks he wants to have as the surviving trust what the formal process is they have for effecting a merger.

It might be as simple as a one page form that has three or four lines to fill in and signature block.

Good luck.