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Consolidating Multiple Solo 401k Plans into One


ill

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My spouse and I have separate solo 401k plans (let’s call them Plan A and Plan B), which we opened a few years ago when we undertook self-employed activities. This year, we opened an LLC as QJV and are looking to consolidate those solo 401k plans into one (let’s call it Plan C).

Furthermore, after some research, it seems that in community property states, we’re considered a Controlled Group and can only have one solo 401k plan. However, we have two solo 401k plans and need to fix this as soon as possible.

We are trying to understand the best course of action.

 

Option #1:

1) Adopt a new solo 401k plan (Plan C)

2) Perform trustee-trustee transfers from Plan A and B to the new Plan C

3) Close the old solo 401k plans (Plans A and B)

 

Option #2:

1) Amend (restate) Plan A so it becomes Plan C

2) Perform a trustee-trustee transfer from Plan B to the new Plan C

3) Close solo 401k plan (Plan B)

 

Option #3:

Create a controlled group plan, which will list both Plan A and Plan B in the solo 401(k) plan documents (Plan C).

 

It seems like Option #1 is the simplest one, but I’m unsure if it’s ok to do it. Option #2 acts as a middle ground, but its benefits compared to Option #1 aren’t very clear to me. Option #3 appears to be the most complex.

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On 10/6/2023 at 7:42 AM, C. B. Zeller said:

My suggestion at this point: pick one of your two existing plans to be the surviving plan, and merge the other plan into it. Execute a participating employer agreement (or joinder agreement, there are other names for it as well) to adopt the plan on behalf of all three employers (your company, your wife's company, and the joint venture). Optionally re-name the plan, but that is largely an aesthetic choice.

Thank you for your suggestion. I've reached out to several third party Solo 401k providers, and the best they can offer is to amend (or restate) the plan, but they cannot help with a plan merge. I've also contacted Fidelity, where our Solo 401ks currently is, and they've confirmed that they can assist with the merge. Just to clarify - is amending (or restating) the plan the same as adopting a plan?

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On 10/6/2023 at 8:38 AM, Peter Gulia said:

And here’s the important idea: Don’t be a do-it-yourselfer. Find a good service provider to guide you in doing things correctly and efficiently and effectively.

I've had no luck with this so far, but I will continue to search for a good service provider. I have examined the procedure, and it seems the task isn't the most challenging. I simply need to remember to finalize a 5500 for the cancelled plan.

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Adoption of a "New Plan" is the creation of a Plan that didn't previously exist.

Adoption of a "Plan Amendment" changes one or more terms of an existing Plan.

Adoption of a "Restatement" is a type of amendment where the terms of existing document are replaced by a new Plan document. This is most common when IRS requires a restatement due to various law changes (right now that is about once every 5 years for pre-approved plans) or when you change plan providers who require you to restate to their pre-approved document for continued reliance on an IRS Opinion letter. The Restatement may or may not make substantial changes to the terms of the existing plan document.   A restatement does not create a new plan.

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12 minutes ago, ill said:

I've had no luck with this so far, but I will continue to search for a good service provider. I have examined the procedure, and it seems the task isn't the most challenging. I simply need to remember to finalize a 5500 for the cancelled plan.

Yet you need help from this board in doing it. You also have to physically move the accounts (a paper transaction but if Fidelity is involved it can and probably will go awry). Are you intending to maintain separate accounts? Make sure the plan reflects that.

I'm not trying to be snarky; I am a do-it-yourselfer. But you will almost certainly make mistakes here. Whether they matter or not (getting "caught") is uncertain.

Ed Snyder

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