Neglected Solo 401k

[cybertruck]

I have a solo 401(k) account that was set up in 2003 when my business was a sole-proprietorship.  A few years later I switched our company plan to a Simple IRA since at that time we hired employees and were no longer eligible for the solo 401(k). 

 I neglected to formally close the plan and in 2017 the balance grew to over $250,000 and I am now delinquent on 2 years of filing form 5500ez.  Penalties of $250 per day up to a $150,000 maximum penalty. 

My plan is to file for penalty relief for 2017 and 2018(reduces penalty to $500 per delinquency, roll the account balance into my TIRA and possibly close the plan.
The balance grew solely from investments; no contributions since switching plans.

Alternative plan:

I have read that as long as no contributions have been made, the plan can remain open in a "frozen" state.  
I was considering keeping the plan open If I can still take out a 401(k) loan from the account while the plan is in this frozen state.  I'm just not sure if this is allowed or even advised.

Any knowledge and recommendations would be appreciated. 
Thanks!!

[Belgarath]

In addition to 5500 filings, the plan document must be constantly updated as required by the IRS in order to retain qualified status. Have you done so? If not, I recommend you consider hiring a local TPA to assist you with the IRS filing under Revenue Procedure 2019-19, or the updated version is it is updated. This isn't an issue to be taken lightly.

As to the advisability of keeping the plan "open" - this isn't something that can be answered here - it requires full knowledge of your specific situation, circumstances, and wants/needs, as well as your tolerance for expense to keep you out of further trouble maintaining this plan.

I can't recommend strongly enough that you engage the services of a good local TPA. I've seen so many disasters on these damned "solo 401(k)" accounts that's it is almost hard to believe. They are almost always set up through a financial advisor/brokerage house, and they rarely receive the attention and oversight they need. Of course, maybe I shouldn't complain, because we've charged a whole lot of fees over the years cleaning up the messes, but I do hate to see folks get stuck in these situations, when they could have been so easily avoided.

Good luck.

[ESOP Guy]

I second the idea of getting a good TPA to help.

As many people here will scream there is no such thing as a Solo 401(k).  That is a marketing term not a legal term.  The big thing is you didn't need to set up the Simple IRA.  You could have easily brought your employees into the 401(k) plan if you had someone advising you who really understood 401(k) plans back then.  

So there is a 3rd option you aren't even realizing.  You could work with a TPA to get this plan up to date.  The missing amendments and plan document updates is a bigger problem than the late 5500s.   You might need a lawyer in the end to help with that problem.  But once the 401(k) plan is brought up to date you might want to work with a TPA to see if in the long if run your goals in terms of saving for yourself and as a benefit plan for your employees if the Simple IRA or the 401(k) plan is the better route to go. 

But one of the big take aways here  is there is no such thing legally speaking as a solo 401(k) plan.  You have a 401(k) plan that you and your employees aren't using at this point.  

[ESOP Guy]

By the way TPA stands for Third Party Administrator.   They are firms that offer services to help you set up and run your plan efficiently and in compliance with the law.  

Both Belgarath and I used an acronym you might not know what it means. 

[cybertruck]

Thank you both for the advice.  I am searching for a TPA now.  And no, I did not know that TPA stood for Third Party Administrator.  

I actually paid (wasted) money on a "Retirement Specialist" to help me figure out what to do, and he recommended closing the plan immediately.  His reasoning was "no reason to wake a sleeping giant".  I also solicited the help of several CPA's that could not help.  Finding someone knowledgeable enough to help me resolve this problem correctly has been a chore in and of itself.

[RatherBeGolfing]

4 minutes ago, cybertruck said:

Thank you both for the advice.  I am searching for a TPA now.  And no, I did not know that TPA stood for Third Party Administrator.  

I actually paid (wasted) money on a "Retirement Specialist" to help me figure out what to do, and he recommended closing the plan immediately.  His reasoning was "no reason to wake a sleeping giant".  I also solicited the help of several CPA's that could not help.  Finding someone knowledgeable enough to help me resolve this problem correctly has been a chore in and of itself.

What area are you in?  You can probably find someone who will do it over phone and email, but if you prefer face to face contact the people here may be able to recommend or at least provide you with local firms to contact.

[cybertruck]

I live in the Kansas City area but I am fine with phone and email.  I would rather find a TPA based on qualifications than location.  I would definitely appreciate a referral if you know someone who is capable of helping me with this issue.