Owner-only 401(k) plans; why not cover children or parents too?

[spiritrider]

I use the term owner-only for the many marketing terms (individual 401k, solo 401k, etc...)

They are limited to owners and their spouses, with exclusions < one year of service or < 1000 hours.

This is my understanding.

These are essentially 401k plans subject to all the general rules. They are really marketing/administrative creations that can be offered with no or minimal administrative costs, because there is no anti-discrimination testing required and lower compliance costs.

The primary reason for this is that the owners and their spouses are all considered HCEs by virtue of > 5% ownership and attribution rules for the spouse. No non-HCEs no testing required.

So my question is this. Why does this not also extend to others under the attribution rules (children, parents, grandparents)? They would also be considered > 5% owners.

[rcline46]

because the plans are permitted to file a 5500-EZ, which until they get over $250,000 means no 5500 filing.

[spiritrider]

Ok, but that is a requirement of the plan administrator and not the provider. The administrator can just as easily file a form 5500-SF electronically.

The reason I ask this is because Oppenheimer has an offering they call a Single K, that does allow owners, their spouses, parents, children, and grandchildren. They claim they can do this for only $15/year because this plan approved by the IRS requires no anti-discrimination testing.

However, other plan providers (Vanguard, Fidelity, etc..) are insistent that only the owner and their spouse may participate.

[401king]

They are marketing this with a term that we normally relate to Uni-K. But they even state that 5500-SF is required if a non-spouse relative participates.

[rcline46]

As always, compare the FULL package, not just price. In this example, WHO is responsible for watching the census and account balances to determine if a filing is necessary, and WHO is preparing the 5500-SF?

[ETA Consulting LLC]

As always

This is the most important point. ALWAYS. These plans are subject to a host of IRS (and in case of ERISA plans, DOL) rules. This goes far beyond delivering beautiful reports that will never be requested by the IRS (or DOL) during audit. In many instances, clients are inundated with reports while failing to meet regulatory requirements during audit. So, you have to align with a service provider to knows what is required and constantly keep you in compliance with respect to those standards. So, in this example, who is responsible for determining if, of when, filing is necessary is one of potentially unlimited issues that should be considered.