Record Keeping Requirements for Solo 401(k)

[matth100]

Hi Folks,

I've a couple of small business clients that need a TPA but not really a TPA fee. The Solo 401(k) balances are small, perhaps $10K-$20K or so.

I was wondering if we could handle the record keeping for these smaller cases in house, and if so if there we some guidelines with regard to 'how' records should be kept?

The only glaring thing I see is the split between EE/ER contributions when the custodian doesn't track that directly, are there other things that need to be recorded on smaller plans like this, and are there any rules on how things should be recorded?

For example, would a copy of payslips showing the contributions suffice?

Lastly, what qualification or course would prepare someone for scenarios like this if professional training is recommended?

Thanks!

Matt

[Lou S.]

I've a couple of small business clients that need a TPA but not really a TPA fee.

Point them to the code and regulations and instructions to form 5500.

Also let them know about the LRMs so they can make sure the plan document is current and in compliance.

[matth100]

I've a couple of small business clients that need a TPA but not really a TPA fee.

Point them to the code and regulations and instructions to form 5500.

Also let them know about the LRMs so they can make sure the plan document is current and in compliance.

I had looked into this previously and was under the impression that form 5500 was not required until assets exceeded $250,000. Further to which, since they are Solo 401(k) plans they could file form 5500-EZ.

My question is for the next decade or so where the plans will remain under the $250,000 threshold, what records should be kept on an annual basis?

[rcline46]

A 'Solo k' is a real, full blown, qualified plan with limited testing due to limited participation. You should be treating it just as you would any 401K/profit sharing plan.

[Bird]

The problem with "solo" 401(k)s is that they are sold as simple products, but as rcline notes, they are in fact a full-blown qualified plan. "Solo" is a marketing term, not a definition.

We handle some "one-man" plans (right there, things get complicated because these plans can cover more than one person) and we apply our regular checklist. Some things matter, some don't, and the fact that a 5500 is not required is actually a somewhat trivial relief, because by the time we get done with our testing and compliance work, the 5500 for most plans, at least SFs, is almost an afterthought; preparing it or not is a matter of a few minutes' time.

What I'm saying, and I think what the other posters have implied, is that there is no minimum/easy threshold or shortcut for providing services for just these plans. You really need to know at least something about controlled groups, eligibility requirements, and any and all aspects of retirement plan testing and compliance. Yes they are easier than plans with other participants but without having such knowledge and experience and systems in place I think you are asking for trouble. (For starters, a 5500 is required in the final year of such a plan; who is going to prepare it?)

[K2retire]

Besides tracking the employee vs. employer money types, you would need to track pre-tax vs. Roth. If the plan allows hardship withdrawals, you also have to track the amount of employee contributions vs earnings on them.

Who will be calculating the employer contributions? If the employer is a sole proprietor, that is a complex calculation.

[austin3515]

Do you work for an accounting firm? Listen, it's like anything else, the devil is in what you do not know. You should not do this for the same reason I won't do electrical work in my house - which is because I can get burned.

[matth100]

Thanks for the replies folks. To elaborate on my situation:

I have a client who can custody assets within a model/prototype Individual 401(k) plan, the client only earns about $25K per year and we will be putting most of that into the plan.

There isn't really enough left over cash from the relationship to justify a large fee in terms of recording that this was $18K in salary deferral (and maybe a few more $K in employer contributions).

I can file the taxes for this, including the 5500 when needed as I'm an Enrolled Agent, but I don't know a huge amount about the practicalities of recording a plan like this one.

If it were bigger, had multiple people involved, different levels of EE/ER contributions and all that I can see it being a viable candidate for using a full TPA solution, but I just look at these smaller plan situations as one that perhaps we can 'make work' if done correctly.

I'm keen to learn, and am looking at a few qualifications to build up my knowledge, but want to know just for a case like this one how much work/time really exists on a practical, yearly basis?

[RatherBeGolfing]

At a minimum, you have to track deposits, account for the earnings (per conteibution type) and, and make sure all transactions in the plan were allowable.

While I suggest this be done someone with 401k experience, it doesn't have to be cost prohibitive. My firm does these by the hour (400 minimum) and they rarely go beyond the minimun unless its a "problem client". If that isnt in a clients budget they should probably consider another vehicle for savings...

[matth100]

At a minimum, you have to track deposits, account for the earnings (per conteibution type) and, and make sure all transactions in the plan were allowable. While I suggest this be done someone with 401k experience, it doesn't have to be cost prohibitive. My firm does these by the hour (400 minimum) and they rarely go beyond the minimun unless its a "problem client". If that isnt in a clients budget they should probably consider another vehicle for savings...

OK so to track deposits, a payslip shows this, would having a copy of all payslips for the year suffice?

In terms of 'earnings per contribution type' Isn't that impossible since the funds co-mingle when they hit the custodial account? How would you be able to determine what percentage of each was used to buy an underlying investment?

[RatherBeGolfing]

Matt, that is what TPA software is for and a good reason why plans should be serviced by plan professionals.

[matth100]

Matt, that is what TPA software is for and a good reason why plans should be serviced by plan professionals.

TPA software sounds interesting, but I'm still not sure it can truly track performance of EE vs ER, or actually if that is necessary.

I'll keep digging.

[austin3515]

"TPA software sounds interesting, but I'm still not sure it can truly track performance of EE vs ER, or actually if that is necessary."

It's borderline insulting when someone comes to a message board focus on 401k PLANS and someone comes in and suggests that the distinguished posters who have been posting for years, and/or have been working exclusively in plan administration for years, somehow don't know what we are talking about. So to make a statement like "I don't believe that a commingled account can be adequately segregated between employer and employee" is basically proving the point to the rest of us who are "in the know" that you are in way over your head. And frankly the biggest mistake you are making is to assume we do not know what we are talking about.

To be honest, segregating the account between employee and employer is quite simple. you can allocate the gains to each source pro rata on a spreadsheet once a year. There, I've answered your direct question.

But that wasn;t our point. Our point is that when the plan is penalized for never executing its PPA restatement, your client will blame you. Or when they take a distribution of their pre-tax account before attaining age 59.5, they are going to blame you for not telling them it was illegal to do so. Or how about if they contribute $18,000 to the Plan by writing a check to the Plan even though there W-2 wage are only $12,000 that year. Again, your fault. How about they take a loan and send you an amortization schedule with annual installments and you don't tell them the loan is a deemed distribution. I can go on and on about all of the things your client will definitely blame on you. But I've bored myself now.

To quote ETA Consulting:

Good luck!

[BG5150]

...or when they hire an employee and don't tell you.

[RatherBeGolfing]

Matt, please listen to Austin and the rest of here with decades of experience. Don't put your clients and yourself in harms way by trying to save a dollar in a very complex industry.

Good luck.

[matth100]

So this might also be insulting - I apologize in advance!

It's borderline insulting when someone comes to a message board focus on 401k PLANS and someone comes in and suggests that the distinguished posters who have been posting for years, and/or have been working exclusively in plan administration for years, somehow don't know what we are talking about.

I absolutely think you guys know what you are talking about - but (apologies if this sounds bad) I also feel that people here are making things sound worst case in order to upsell their services.

So to make a statement like "I don't believe that a commingled account can be adequately segregated between employer and employee" is basically proving the point to the rest of us who are "in the know" that you are in way over your head.

Technically I said:

I'm still not sure it can truly track performance of EE vs ER

To which you addressed as:

To be honest, segregating the account between employee and employer is quite simple. you can allocate the gains to each source pro rata on a spreadsheet once a year

Which does speak to my point that you can't actually track it accurately, so we're in agreement there as you propose Pro Rata allocations. At this point I'm not totally sure why it matters in regard to specific fact patterns I'm working with.

As for the other points:

But that wasn;t our point. Our point is that when the plan is penalized for never executing its PPA restatement, your client will blame you. Or when they take a distribution of their pre-tax account before attaining age 59.5, they are going to blame you for not telling them it was illegal to do so. Or how about if they contribute $18,000 to the Plan by writing a check to the Plan even though there W-2 wage are only $12,000 that year. Again, your fault. How about they take a loan and send you an amortization schedule with annual installments and you don't tell them the loan is a deemed distribution. I can go on and on about all of the things your client will definitely blame on you.

I'd expect the client to blame me for this, regardless of whether there was a TPA involved or not - I think it's my job to explain the pro's and con's of the retirement options they have, and if they messed it up I wouldn't try to pin the blame on a third party for that lack of understanding.

Back to the point, from what I can gather from looking into this, an Individual 401(k) plan with a model plan document from a custodian with no bells or whistles seems pretty straightforward to administer in terms of record keeping. I'd like to know if I'm missing anything on this, but if that is offensive, I apologize and I can just keep on looking.

I do absolutely think that for clients (even Individual 401(k) clients) who have more elaborate needs from their plan, a custom designed plan document and ongoing recordkeeping from a professional TPA is essential and I'm all for it. In fact, I have a few clients that I'll be needing this service for and will gladly pay the market rate.

Thanks everyone again for your insights here.

[401king]

Would this all be a moot point if they found a TPA to manage their Individual 401k for a nominal ~$300/year? Peace of mind comes with minimal cost in this case. If it is your opinion that they do not need a TPA then you may be making yourself a fiduciary to the Plan, putting you at great risk if & when something is overlooked.

[BG5150]

There is a difference in record keeping assets and administering a plan.

Could you easily record keep assets of a "one-man' plan? Probably.

Administering it? That's a different story.

As was mentioned before: who is going to make sure the plan is amended timely? Who is going to make sure the deferral and 415 limits are not violated? What about the deductibility (25% of comp) limit? Are hardships going to be available? Someone has to track contributions vs account balance. Who is going to track vesting? What if something goes amiss? Who is going to make sure it gets corrected properly? Regular paychecks on a W2--who is going to track timing of deposits?

[matth100]

For some of these clients, $300 is probably too much.. I know it sounds crazy, but that's the fact of it. For others, $300 or more is fine.

As was mentioned before: who is going to make sure the plan is amended timely? Who is going to make sure the deferral and 415 limits are not violated? What about the deductibility (25% of comp) limit? Are hardships going to be available? Someone has to track contributions vs account balance. Who is going to track vesting? What if something goes amiss? Who is going to make sure it gets corrected properly? Regular paychecks on a W2--who is going to track timing of deposits?

Again, depends on the client.

Client type 1 with a prototype plan will run a single payroll for the entire year that I'll be setting up and run initially in Dec and then even out over 2017. I'll then send them the forms to fund the account at the custodian in terms of amount to transfer in.

Client type 2 with a prototype will run recurring payroll which I will help them establish and set up ACH pulls from the custodian for regular, automated contributions.

The plan is to have these clients using QB with direct bank account feeds so we can monitor and discuss business income/expenses and W-2 Income.

I'd then monitor the custodial accounts to confirm that the amounts contributed tallied up to the amounts we established with the Payroll. One thing that might sound silly to you guys was an idea to do two ACH pulls per period on the custodian side, which would make it really apparent how much was coming in for EE and ER.

Things like hardship/loans/after tax contributions etc I would put into the bucket of things where a custom plan document and TPA would be brought in. This is what I consider client type 3, and even with individual plans if it seems these provisions are requested or going to be needed I'd suggest that an off the shelf plan isn't a good fit, since so much more can be achieved via customization from people with the experience you folks have.

[Belgarath]

Wow. Well, I'll just say that in my opinion, anyone for whom $300.00 is too much to pay for qualified plan administration should NOT, NOT, NOT have a qualified plan.

I've been paid a lot of money by these "do it yourself" plans when filing under VCP, etc., to correct the problems.

I'm also curious - how do YOU get paid on all of this? I presume you are not a charitable organization. Are you a broker, receiving commissions, or a CPA? However, that's really none of my business, so I'm not offended if you decline to answer that.

Anyway, if you intend to go down this road, I wish you the best of luck. I think others here have already given you sufficient advice, and if you proceed, do it with open eyes (because the clients will most definitely blame you when something goes wrong) and make sure your E&O is paid up.

[BG5150]

If $300 is too much, how can they afford to put money into a 401(k) plan. Especially employer money.

The plan document can be set up to allow for fees to come out of the plan.

If these are self-employed individuals (non-C-corporation, non-S-corp.), they wouldn't (shouldn't (?)) be getting a "payroll" to deduct from, and thus would have no W2 to reference.

Are you going to advise how much Employer Contribution can go into a plan when someone's Schedule C income is $35,000 and they choose to defer $10,000?

An "off-the-shelf plan" can comfortably accommodate loans/hardships/after-tax transactions.

If you go this route, which you seem hell-bent on, why can't you create two accounts, one for EE and one for ER money? I see it all the time.

[matth100]

I think the key is ratio. $300 to a $10K contribution is 3% which is a tremendously high amount to pay as a fee for just one component of an overall solution. Even at $20K 1.5% is too much IMO.

These folk are all going to be running S elections, so that is where the W2 comes in.

I'm running a fee only advisor firm, there is a fee but it includes 'everything' and while I would share it here I wouldn't want to horrify you with how small it is

[WDIK]

there is a fee but it includes 'everything'

Do they get fries with that?

[matth100]

there is a fee but it includes 'everything'

Do they get fries with that?

Thanks for adding value to the discussion.

[spiritrider]

I am going to make a different observation from the CPA and TPA points of view. I am simply an employer (myself) of a one-participant 401k plan. I appreciate the knowledge and experience of the members of this forum. It is primarily intended for professionals, but unlike some other professional forums, they are willing to share with everyone. Which I find extremely helpful, because as has been pointed out one-participant 401k plans are 99.9% the same as full blown plans.

With that said, I think the TPA viewpoints expressed in this thread are a little over reactive. It seems like the majority of replies here are assuming that we a talking about investment only accounts in conjunction with separate plan documents with no support from the financial institution. These absolutely require a TPA. But...

From the OP's posts, I rather think we are talking about standard protype backed plans marketed by mainstream providers. Therefore, I am assuming we are talking about a standard prototype one-participant plans from a financial institution.

Even the main stream providers differ in the level of services they provide. Some only act as custodian, leaving the the trustee and administrator choice to the employer. Some extend that to provide trustee services. They vary in the level of record keeping they provide. They all leave the administrator choice to the employer.

Sure the principal can specify a third party administrator (and if necessary trustee), but the vast majority of such one-participant plans are operated with the principal acting possibly as trustee, full/partial record keeper, and/or full/partial administrator.

We can argue whether that is a good idea or not. Unfortunately, the providers market these plans as nothing more than a SEP IRA with the possibility to increase your contributions, by adding employee deferrals if you haven't otherwise used up that space. The reality is that most people with one-participant 401k plans operate in blissful ignorance.

So a knowledgeable CPA can provide useful services in contribution calculations, record keeping, and administrative advice. This is certainly better than what currently happens with the majority of one-participant sponsors being relatively clueless of what lies beneath the surface of their plans. However, my experience and anecdotal evidence leads one to conclude that many CPAs are also clueless in even the most basic issues.

As a corollary, there have been a lot of inferences based on facts not in evidence. Given my assumption.

1. Every provider I am familiar with; monitors LRMs revises/restates the plan document when required. All that is required by the administrator is to timely provide amendment certification and complete a new adoption agreement in a timely basis. I have only needed to do this twice in the last dozen years.

2. Yes, controlled groups and affiliated service groups are complex and I would consult a retirement plans professional. However, all that is necessary is to know the basics to know you need assistance when the circumstances arise.

3. Most providers track contributions and earnings by account type. Some will track 402g and 415c limits.

4. Unless I am mistaken I don't believe the issue of in-service distribution prior to 59.5 has anything to do with pre-tax vs. post-tax. My understanding is that all deferrals and their earnings regardless of type and non-vested employer contributions can not be withdrawn prior to 59.5 even if the plan allows in-service distributions. Vested employer (pre-tax) contributions and earnings can be withdrawn prior to 59.5.

5. All one-participant employer contributions are fully vested.

6. There is no anti-discrimination testing.

So my opinion is this. If and only if we are talking about standard prototype plans at a major provider, there is no reason why the OP can't provide value add to their clients on these plans. At some level this is not that much different than the services a CPA provides on other areas of tax law. Provided the CPA acquires the necessary knowledge.

The plain fact is that plan sponsors are simply not going engage a TPA for a mainstream provider one-participant 401k. At the end of the day are they better off with the assistance of a reasonably knowledgeable CPA or flying solo?

[Lou S.]

I think the key is ratio. $300 to a $10K contribution is 3% which is a tremendously high amount to pay as a fee for just one component of an overall solution. Even at $20K 1.5% is too much IMO.

These folk are all going to be running S elections, so that is where the W2 comes in.

I'm running a fee only advisor firm, there is a fee but it includes 'everything' and while I would share it here I wouldn't want to horrify you with how small it is

You get what you pay for Matt.

Either the solo-person can become an expert at running his/her own plan and take all the risks of blowing the rules and disqualifying the plan when they screw something up or they can hire someone qualified to do it.

There are a lot of programs out there that don't really need a TPA. IRA, SEP, Simple-IRA (At least I think I don't really follow them).

But basically the guy wants an $18K+ tax deduction with none of the cost associated with making sure that is properly done.

If you'd like you can track all the sources for them (different types of money have different withdrawal restrictions for one), monitor when the IRS has required amendments, check for when the 5500 is due, determine if they have employees who might be eligible (bringing in a whole host of other issues), determine if they have other business that may be related, help them with formal termination of the plan when they want to get rid of it, explain the loan rules when they want to borrow money and help them comply with those rule, explain if and when they are eligible to take money out of the plan, help them prepare 1099-R when money does come out of the plan,...

There is simply a lot to monitor on a 401(k) plan even if it doesn't have much money so you have to decide is the extra tax deferral now worth it and do you want to go it alone and hope it doesn't blow up down the road or do you want to hire competent help.

If it wasn't a formal retirement plan that had to comply with all the IRS rule they would call it an IRA, not a 401(k) plan.

[WDIK]

there is a fee but it includes 'everything'

Do they get fries with that?

Thanks for adding value to the discussion.

No offense was intended.

I think that hidden within this statement is really the underlying aspect of this whole discussion. What is the perceived value of something?

For some, my original post may have been of value because it added some levity to the conversation.

For others, it may have added value to the discussion by highlighting the possible dichotomy of being able to provide services that include everything while seeking for insight on some fairly routine procedures for pension professionals.

For still others, it added no value because it did not address a desired question or was perceived as a belittling comment.

Similarly, some may see little value in paying fees for certain services because they prefer to the take the associated risks or assume little or no risk will exist.

Others see a greater value in paying the fees to a seasoned professional due to the peace of mind they will have.

To each his own.

[Belgarath]

Lou - just for grins, I'd like to point out that there is what to me is an unexpectedly high level of noncompliance out there on SIMPLE-IRA plans. (I don't see this problem, generally, on SEP plans)

Lots of VCP filings on the SIMPLE's.

I suspect many, if not most of us in the TPA world have seen a lot of noncompliance on the brokerage house one person off the shelf plans. To be fair, we probably only get brought in on the bad ones, and don't generally see the good ones, so perhaps my perceptions are skewed. You know, there are lies, damn lies, and statistics...

Here's the thing. On these plans, CAN someone do it on their own? Absolutely. Are the odds of doing it right, with no problems, for no money with no professional help, in their favor? Best of luck, because they may need it.

Anyway, it's a big step off my soapbox, so I'm going to climb down now.

[BG5150]

1. Every provider I am familiar with; monitors LRMs revises/restates the plan document when required. All that is required by the administrator is to timely provide amendment certification and complete a new adoption agreement in a timely basis. I have only needed to do this twice in the last dozen years.

Different document providers offer different levels of support with this. Some just send out an amendment and say sign this by such-and-such date and be done with it. In situations such as the OP, it seems like the doc provider would be doing just that--providing the docs.

Oftentimes, rules go into affect way before the plan amendment language is ready, so who is going to make sure these plans are being run according to these rules?

2. Yes, controlled groups and affiliated service groups are complex and I would consult a retirement plans professional. However, all that is necessary is to know the basics to know you need assistance when the circumstances arise.

Yes and no. For some people, what may seem irrelevant is really important. It goes back to the idea of "You don't even know what you don't know."

3. Most providers track contributions and earnings by account type. Some will track 402g and 415c limits.

The OP is saying the Financial Adviser wants to track it in his office. It has nothing to do with the "provider;" they aren't trying to run this on the TIAA or Fidelity platform. The OP was asking about a "glaring" issue of how to split up EE & ER contributions.

4. Unless I am mistaken I don't believe the issue of in-service distribution prior to 59.5 has anything to do with pre-tax vs. post-tax. My understanding is that all deferrals and their earnings regardless of type and non-vested employer contributions can not be withdrawn prior to 59.5 even if the plan allows in-service distributions. Vested employer (pre-tax) contributions and earnings can be withdrawn prior to 59.5.

True, 59 1/2 distributions of deferrals do not see a difference in pre- and post-tax money. However, the gross deferrals, no earnings, are allowed before 59 1/2 for hardships. And ER contributions MAY be eligible for withdrawal. The plan document must allow for it.

Where pre-tax and post-tax gets fuzzy is when an actual distribution is taken. The account must accurately track the basis for post-tax and the earnings thereon. If a partial distribution is taken, who is going to figure out how much pre-tax, post-tax and earnings will be taken? Who will be issuing the 109--Rs?

5. All one-participant employer contributions are fully vested.

No. Not true.

6. There is no anti-discrimination testing.

True. Until the owner has a secretary who works part time and the owner thinks she'll never be eligible for the plan. Until she works some overtime during a difficult period and has 1,020 hours worked for the year. Now it's NOT a one-participant plan any more.

So my opinion is this. If and only if we are talking about standard prototype plans at a major provider, there is no reason why the OP can't provide value add to their clients on these plans. At some level this is not that much different than the services a CPA provides on other areas of tax law. Provided the CPA acquires the necessary knowledge.

Are there CPAs who could provide this service? Sure. However, I've come across many CPAs (and Financial Advisors) to whom a little knowledge is a very dangerous thing.

The plain fact is that plan sponsors are simply not going engage a TPA for a mainstream provider one-participant 401k. At the end of the day are they better off with the assistance of a reasonably knowledgeable CPA or flying solo?

A "reasonably knowledgeable CPA" may be more dangerous than flying solo.

My thoughts in bold.

[matth100]

Different document providers offer different levels of support with this. Some just send out an amendment and say sign this by such-and-such date and be done with it. In situations such as the OP, it seems like the doc provider would be doing just that--providing the docs.

Oftentimes, rules go into affect way before the plan amendment language is ready, so who is going to make sure these plans are being run according to these rules?

I asked the provider of the docs and they said they took care of this, any updates are filed appropriately and both the participant and myself would be advised of any changes.

The OP is saying the Financial Adviser wants to track it in his office. It has nothing to do with the "provider;" they aren't trying to run this on the TIAA or Fidelity platform. The OP was asking about a "glaring" issue of how to split up EE & ER contributions.

Not exactly the case - I was asking (sorry for not being clear) if I run it on a custodial platform what additional measures should I take to ensure that it is all running properly. What I've noticed is that some providers (EG Vanguard) split the transactions into EE/ER at time of contribution whereas others (TD Ameritrade) do not. I just wanted to make sure that if we were with a custodian like TD (using their model prototype plan that they update) that contributions were tracked properly.

[matth100]

there is a fee but it includes 'everything'

Do they get fries with that?

Thanks for adding value to the discussion.

No offense was intended.

I think that hidden within this statement is really the underlying aspect of this whole discussion. What is the perceived value of something?

For some, my original post may have been of value because it added some levity to the conversation.

For others, it may have added value to the discussion by highlighting the possible dichotomy of being able to provide services that include everything while seeking for insight on some fairly routine procedures for pension professionals.

For still others, it added no value because it did not address a desired question or was perceived as a belittling comment.

Similarly, some may see little value in paying fees for certain services because they prefer to the take the associated risks or assume little or no risk will exist.

Others see a greater value in paying the fees to a seasoned professional due to the peace of mind they will have.

To each his own.

Sorry about that - I've done extensive research and nothing had led me to believe that TPAs had a sense of humor

I personally don't see a dichotomy here. If the answer is routine and straightforward, why not share it rather than put up walls?

I'm not sure I want to go through the entire QPA course just to discover that it was actually pretty straightforward all along!

[BG5150]

Bottom line: can you track the contributions on a platform that doesn't separate them? Of course. It happens all the time with pooled plans.

The plan document should tell you when and how to allocate the earnings. You can build a spreadsheet to calculate those earnings. You (someone) will need to furnish the participants with a statement at least annually with a breakdown by money type of their account.

[BG5150]

But I think a lot of the advice here boils down to this:

You may think you are merely going down a small rabbit hole by record keeping the funds. But you may find yourself waist deep in a warren of rules and contingencies you weren't prepared for. Some tunnels are straight forward, but some are winding and complex and lead to further winding and complex tunnels.

[chc93]

Different document providers offer different levels of support with this. Some just send out an amendment and say sign this by such-and-such date and be done with it. In situations such as the OP, it seems like the doc provider would be doing just that--providing the docs.

Oftentimes, rules go into affect way before the plan amendment language is ready, so who is going to make sure these plans are being run according to these rules?

I asked the provider of the docs and they said they took care of this, any updates are filed appropriately and both the participant and myself would be advised of any changes.

The OP is saying the Financial Adviser wants to track it in his office. It has nothing to do with the "provider;" they aren't trying to run this on the TIAA or Fidelity platform. The OP was asking about a "glaring" issue of how to split up EE & ER contributions.

Not exactly the case - I was asking (sorry for not being clear) if I run it on a custodial platform what additional measures should I take to ensure that it is all running properly. What I've noticed is that some providers (EG Vanguard) split the transactions into EE/ER at time of contribution whereas others (TD Ameritrade) do not. I just wanted to make sure that if we were with a custodian like TD (using their model prototype plan that they update) that contributions were tracked properly.

Well... I had one recent solo 401k plan where the sole participant set up 2 TD Ameritrade accounts... one to hold his rollover, and the other to hold his 401k deferrals. And both TD accounts were linked so a consolidated statement was also available. So even with TD, you should be able to set up 2 TD accounts... one for EE, one for ER, and also get a consolidated statement. And this may be even better than Vanguard, as the EE and ER money can be invested differently.

[Lou S.]

Lou - just for grins, I'd like to point out that there is what to me is an unexpectedly high level of noncompliance out there on SIMPLE-IRA plans. (I don't see this problem, generally, on SEP plans)

Lots of VCP filings on the SIMPLE's.

I suspect many, if not most of us in the TPA world have seen a lot of noncompliance on the brokerage house one person off the shelf plans. To be fair, we probably only get brought in on the bad ones, and don't generally see the good ones, so perhaps my perceptions are skewed. You know, there are lies, damn lies, and statistics...

Here's the thing. On these plans, CAN someone do it on their own? Absolutely. Are the odds of doing it right, with no problems, for no money with no professional help, in their favor? Best of luck, because they may need it.

Anyway, it's a big step off my soapbox, so I'm going to climb down now.

Leave it to the IRS to make SIMPLE plans exceeding complicated in some respects. LOL

With the 1 person plans the biggest issues I've seen over the years, where a TPA often gets called in after the fact happens when the 1 participant puts the plan on auto pilot and forgets about it are -

1. Failure to keep up with IRS amendments or restatements.

2. Failure to comply with the 415 limits

3. Failure to comply with the 404 deduction rules.

4. Improper and often undocumented in-service distributions

5. Failure to identify eligible employees when they "forget" they have hired one or more.

6. Improper and undocumented Plan Loans that often fail to comply with 72(p)

7. Not filing 5500 when assets exceed threshold.

8. Not formally terminating the plan.

9. Not filing a final 5500 even is assets don't exceed dollar limit.

What it comes down to is what level of comfort is the 1 participant owner willing to assume.

Like you said it can be done and possibly without a hitch but fixing errors after the fact is often much more expensive than avoiding the error in the first place.

[spiritrider]

5. All one-participant employer contributions are fully vested.

No. Not true.

My thoughts in bold.

Please elaborate. Under what circumstances would a one-participant plan ever have a vesting schedule?

[BG5150]

Please elaborate. Under what circumstances would a one-participant plan ever have a vesting schedule?

maybe I should have said "not necessarily."

I'm not saying there HAS to be a vesting schedule. In fact, if you are designing a one-participant plan there probably should not be a vesting schedule.

However, you could write a plan to have one in anticipation of hiring an employee who may become eligible for the plan. This way you don't have to remember to amend the plan later.

[RatherBeGolfing]

I would imagine a partner only plan could have vesting schedules.

Also, misconceptions such as "all one-participant employer contributions are fully vested" could certainly lead to having a vesting schedule even if it wasn't the intention...

[chc93]

If the "solo" participant is near or over age 70 at plan inception, a vesting schedule... like 3-year cliff, will delay RMD's. FWIW

[matth100]

If the "solo" participant is near or over age 70 at plan inception, a vesting schedule... like 3-year cliff, will delay RMD's. FWIW

That's actually really neat... but just thinking, if the owner should die before they are vested, what would happen to the ER side?

[chc93]

If the "solo" participant is near or over age 70 at plan inception, a vesting schedule... like 3-year cliff, will delay RMD's. FWIW

That's actually really neat... but just thinking, if the owner should die before they are vested, what would happen to the ER side?

Usually benefits are fully vested upon death while employed.

[K2retire]

If the "solo" participant is near or over age 70 at plan inception, a vesting schedule... like 3-year cliff, will delay RMD's. FWIW

Don't forget that all participants must be 100% vested upon reaching Normal Retirement Age.

[chc93]

If the "solo" participant is near or over age 70 at plan inception, a vesting schedule... like 3-year cliff, will delay RMD's. FWIW

Don't forget that all participants must be 100% vested upon reaching Normal Retirement Age.

Yes... so define NRA as later of 65 or 5 years of participation. That should get you through the 3 year vesting. All assuming the participant is at or near age 70 at plan inception.

[austin3515]

What if he retires before completing 5 years, and does NOT terminate the plan before hand, and THEN dies? Doesn't he forfeit everything? Isn't 100% vesting on death only for active employees?

[chc93]

What if he retires before completing 5 years, and does NOT terminate the plan before hand, and THEN dies? Doesn't he forfeit everything? Isn't 100% vesting on death only for active employees?

Wouldn't he become 100% vested upon "retirement"?

[austin3515]

Not if he does not have 5 years of participation.

[chc93]

OK... he hasn't reached NRA. Then, I think forfeit everything, as you say. In fact, he forfeits everything when he "retires" (terminates) since non-vested (assuming vesting schedule is as such). So subsequent death is not relevant?

[matth100]

Question related to the value such vesting would offer to the plan participant: if they did not incorporate this clause then they would have to start RMDs after 70 1/2 even if still working - would they be able to both contribute and RMD in conjunction in this scenario? If so, the lost opportunity from the delayed RMD likely isn't much in a single participant plan?

[ETA Consulting LLC]

A qualified plan is not allowed to impose a maximum age for making contributions; per IRC Section 410(a)(2). This is a basic question that is typically addressed by the plan's TPA.

I've been providing sales consulting for financial advisors, directly and indirectly, for the past 15 years. This was something I've always emphasized. No matter how simple or watered down you think a plan may be (i.e. one person plan), you still need someone who actually knows what they're doing. I've provided too many VCP corrections for these plans that decided they can operate without a skilled TPA. I've even provided some corrections for plans that had TPAs (and that was pretty unfortunate).

At the end of the day, it doesn't matter if your painting a house, pulling a tooth, or operating a qualified plan, you should seriously consider retaining the services of someone who is skilled in that area; or prepared to be stressed beyond your wildest imagination. When filing VCP submissions, I typically look beyond the revenue (which is good for my practice) and feel a little sad knowing how easily avoidable many of the issues would've been had the services of a skilled professional been retained.

Just thinking out loud :-)

Good Luck!

[matth100]

I like basic questions - thanks for the answer

So if all we are doing is delaying the RMD a couple of years and not offering any other value, the return doesn't seem to be overly great in relation to the added complication and potential risk. Is there any other value add that the vesting option, if possible, would offer?