Sole Prop 401k Form 5500

[nkaufman]

Hello,

Have a sole prop, no employees and have a Individual 401k plan with Fidelity and fill up Form 5500-SF.

If I open another 401k plan say with Vanguard, what are the issues that I should keep in mind?

Of course, max contributions etc. remain across the plans.

Does this mean I need to file 2 5500-SF or just 1?

Thanks,

 

 

 

[Lou S.]

I'm not sure I follow the question. Why would one ever sponsor two 401(k) plans covering the same individual who is the sole employee of the company?

I assume you want to have assets in two places and the document you have from one vendor does not allow for assets at another vendor?

That's easily fixed with a better 401(k) trust document.

In this case you would have one 401(k) plan with assets held at two custodians.

 

[nkaufman]

Sure I understand that a better 401k trust document could do that. But in that case, how would I take that document to say Fidelity and Vanguard and ask them to open accounts? 

Right now, I'm inclined to go with templates that Fidelity and Vanguard already have in place in which case the only thing to know is if I need to file separate 5500-SF for both or just one for both of them.

Thanks,

 

[RatherBeGolfing]

1 hour ago, nkaufman said:

Sure I understand that a better 401k trust document could do that. But in that case, how would I take that document to say Fidelity and Vanguard and ask them to open accounts? 

Right now, I'm inclined to go with templates that Fidelity and Vanguard already have in place in which case the only thing to know is if I need to file separate 5500-SF for both or just one for both of them.

Thanks,

 

Most likely, Vanguard will make you use their prototype document to open the account.  In that case, it should be plan 002, and would be a separate plan meaning separate Form 5500s.

The big question is WHY do you want two plans?  Is it just because you want to invest at Vanguard in addition to Fidelity?

A "better document" would be one that is not locked to any particular investment house.  For example, if I were to set the plan up on the volume submitter document my firm sponsors, I would also obtain an EIN for the plan as it is its own entity. You could then take it to Fidelity, Vanguard, Morgan Stanley, or wherever you want, and open an account in the name and EIN of the trust (the plan).  Its really as simple as that, all you need is the EIN and the a copy of the plan document.  In this case, you would have ONE plan, ONE 5500, but however many investments you want. 

[nkaufman]

Need to ask Vanguard/Fidelity if they'd allow me to open accounts using your plan and if so what fees would apply.

Their plans with their prototype documents carry no fees/charges.

Thanks,

 

 

 

[RatherBeGolfing]

7 minutes ago, nkaufman said:

Need to ask Vanguard/Fidelity if they'd allow me to open accounts using your plan and if so what fees would apply.

Their plans with their prototype documents carry no fees/charges.

Thanks,

Vanguard and Fidelity will both let you open accounts with a document that isn't theirs.  Many of us who post on this board have our own documents that our clients can use pretty much anywhere.  Many of our clients have accounts with Vanguard and Fidelity.  For Vanguard and Fidelity, it is just a matter of opening account type "A" that uses their document, or "B" that uses an outside document.

An outside document will also be more flexible in what you can/cannot do, allow you to move from one vendor to another without terminating the plan, etc.

The downside is that an outside document will cost you a certain amount to set up and maintain. So you will need to determine what is more important, the "free" document or the flexibility that comes with an outside document and the help of a retirement professional.

When you shop around for "free" documents, pay very close attention termination fees as "free" plans usually cost nothing to start but a bundle to close down.  Many times the fee to terminate a "free" plan can add up to more than what it would cost you to get a document from an outside source.  Termination fees easily get up to over $1,000. Ask for a copy of their 408b-2 disclosure and read it.  It is boring stuff but can save you money in the end.

I hope that helps.

[jsmith1985]

13 hours ago, nkaufman said:

Hello,

Have a sole prop, no employees and have a Individual 401k plan with Fidelity and fill up Form 5500-SF.

If I open another 401k plan say with Vanguard, what are the issues that I should keep in mind?

Of course, max contributions etc. remain across the plans.

Does this mean I need to file 2 5500-SF or just 1?

Thanks,

 

 

 

 

I have already done. I started with having one at Vanguard. But Vanguard didn't allow stock investments in this account. Hence opened another plan with Fidelity that did. This was done many years back.

Been filing 2 5500-SF for some time.

If you'd like to continue as sole prop w/no employees, then perhaps it doesn't matter whether you have one plan or two. Yes, you'll need to file 2 forms instead of 1 but they are not that difficult to do once you start doing it.

But also keep in mind what some people who are more experienced than me in these things are suggesting on these forums, in case your situation changes.

@RatherBeGolfing - Thanks for mentioning 408b-2. I might need to look into that as well and see what they say about termination fees.

 

[TPAJake]

Smith & Kaufman, free is never free--Get a real Plan Document & invest the money wherever you want.  Filing multiple 5500's & "accidentally" exceeding contribution limits in multiple plans is EXACTLY how you'll end up paying one of us thousands of dollars to fix it for you.  Kudos to you both for being savvy savers, but we've seen this movie & we know how it ends.     

[jsmith1985]

55 minutes ago, TPAJake said:

Smith & Kaufman, free is never free--Get a real Plan Document & invest the money wherever you want.  Filing multiple 5500's & "accidentally" exceeding contribution limits in multiple plans is EXACTLY how you'll end up paying one of us thousands of dollars to fix it for you.  Kudos to you both for being savvy savers, but we've seen this movie & we know how it ends.     

I'd need to find out costs associated with having accounts with Vanguard and/or Fidelity using a custom-built plan. What the annual charges/asset based charges etc. are before making a decision to go with a custom-plan. Once I have that information then perhaps like you mentioned elsewhere, I might go with a retirement specialist.

[RatherBeGolfing]

18 minutes ago, jsmith1985 said:

I'd need to find out costs associated with having accounts with Vanguard and/or Fidelity using a custom-built plan. What the annual charges/asset based charges etc. are before making a decision to go with a custom-plan. Once I have that information then perhaps like you mentioned elsewhere, I might go with a retirement specialist.

Absolutely, check ALL costs before you make a decision.  Pay extra attention to details when someone tells you its "free" or no charge.  Its never free, they are making money somewhere and the trick is finding out where so that you can compare apples to apples.  The same goes for pricing a firm to do the outside document, review ALL fees from the initial document, maintenance, and termination.

[jsmith1985]

18 hours ago, RatherBeGolfing said:

Absolutely, check ALL costs before you make a decision.  Pay extra attention to details when someone tells you its "free" or no charge.  Its never free, they are making money somewhere and the trick is finding out where so that you can compare apples to apples.  The same goes for pricing a firm to do the outside document, review ALL fees from the initial document, maintenance, and termination.

I was hoping that people on this forum who do this, would already have an idea of costs. Since they create plans that their clients take to Vanguard/Fidelity. 

My suggestion to OP is:

- Don't let the fear of filing multiple 5500-SF scare you

- As TPAJake mentioned, do NOT exceed contribution limits.

As long as you follow that, submit all paperwork in time, you should be good as long as your situation does not change. If businesses become too complex, then of course it might be worthwhile to take another look.

Of course, if you are not comfortable

- filing paperwork or

- calculating contribtions (these are 2 things that trip most people)

you can take professional advice anytime to ensure that everything is kosher.