Schwab "Solo 401(k)"

[PamR]

I know they don't really exist, however, I have a client that has a "solo 401k)" with Schwab.  He has hired an employee and that employee is now eligible.  Schwab will not allow us to open an account for the employee under the current plan.  They say we can open a company retirement account (CRA) for that money.  When I asked how to transfer the "solo 401k" account over to the CRA I was given a distribution form, well there is no distributable event and they confirmed it would generate a 1099, etc.  Has anyone else run into this situation?  Have any ideas how to solve it?  

We restated the plan on our plan document and I guess we can just keep his "solo 401k" account and combine it with the CRA account for 5500 purposes, just seems like there should be an easier way.

[Bri]

I'm having the same problem this week with Fidelity - they think the sponsor needs to terminate the plan to account for the fact that the sponsor now has an employee.  (Even though they're on TPA documents that aren't even "solo" versions.)  And they expect any transfer to their version of "these accounts are okay to use in ERISA plans" to be handled via distributions. 

I certainly don't feel like writing the narrative for the sponsor to provide the IRS when any sort of examination has to explain what the fraudulent 1099s (even though they show rollovers) would be about because this is absolutely not a successor plan issue.

[Nate S]

Open other brokerage account for ee with any other provider besides Schwab or Fidelity.

[RatherBeGolfing]

The other option is to simply make the restated plan "002" as a successor plan and have them transfer the assets.  No distributable event, but gets the assets away from their locked in product.

[PamR]

It's a 401k plan, so you can't have another plan in less than 12 months if you create plan 002.  At least I don't think you can.  It's frustrating because it is NOT a successor plan, it's the same plan.  Schwab just won't let go of the money in the account, even to transfer it within Schwab.  Seems wrong to me.  A trustee should be able to move their 401k to another custodian if they want to.

 

[Lou S.]

You need to convince them it's the same Plan and get them to do a trustee-to-trustee transfer. This can be difficult in many cases and can require quite the back and forth with documentation and often times escalating it to higher management to get it done right.

[Bri]

Honestly, if they're willing to ignore any thoughts to file Forms 1099-R to the IRS regarding these "distributions" then there shouldn't be any issue, even if the custodian "thinks" there's a different legal plan.  Force the issue by making the "second" plan the same 001.

[PamR]

I have called Schwab multiple times and each time I am told that the distribution will trigger the issue of a 1099-r to the participant.  I feel like I'm running in circles.

[Lou S.]

You need to reiterate that they are transferring the assets in a TRUSTEE TO TRUSTEE transfer and the is NO DISTRIBUTION as the participant does not have a distributable event. That is you are simply replacing the asset provider of the Plan and that they are no longer responsible for maintaining the plan after the transfer.

It often helps if the new account has the same name and EIN as the old and you can get a letter of acceptance from the new custodian.

Of course if it's going from Schwab to Schwab and they still won't do it, I don't know what to tell you.

[Bri]

Plan Administrator overrides Schwab by issuing its own 1099-R amending the distribution value to $0.  Easier if plan has its own tax ID, of course.  (Really, I'm in one of those "I'll show YOU who runs this plan" sort of moods late on a Friday.)

[Dare Johnson]

I was just dealing with Schwab on this week.  All you need is a letter of instruction signed by the trustee to transfer the assets into another 401k brokerage account.  This will not generate a 1099-R.

[Appleby]

On 7/21/2022 at 10:42 PM, Nate S said:

Open other brokerage account for ee with any other provider besides Schwab or Fidelity.

But then the plan would be operating under two separate plan documents. If using another provider, better to move all assets under the plan to that provide and plan document.

[RatherBeGolfing]

5 minutes ago, Appleby said:

But then the plan would be operating under two separate plan documents. If using another provider, better to move all assets under the plan to that provide and plan document.

It sounds like they had restated to their document rather than Schwab's, so it would be one plan document and two custodians.