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Black Creek Retirement Plans, Inc.
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Top 3 Mistakes in Solo 401(k) Plans...continued

 

  1. Failure to Update/Amend the Plan Document: Every 6 years, the plan  document needs to be restated to conform to new law changes. The latest  restatement period (PPA Restatement) ended as of April 30, 2016. The  company who creates the plan document should be keeping in contact with  their clients about the restatement and do the updates on the plan  document. Failure to keep the plan in compliance with federal  regulations may result in penalties and revocation of tax status.
  2. Using an LLC (Limited Liability Company) without wages or earned  income: While an LLC may adopt a Solo 401(k), an LLC that owns rental  properties is not a proper entity to establish a Solo 401(k) plan. The  LLC receives "rental income" and the owners are not considered  "employees" receiving wages or earned income that may be contributed to  the retirement plan. Rental income cannot be contributed to a retirement  plan, and as a result the owner is not an employee or person receiving  earned income. As a requirement, all 401(k) plans must be established by  a company for the benefit of its employees with wages or earned income.
  3. Failing to File Form 5500: Generally, 401(k) plans are required to  file a return on a Form 5500. Solo 401(k) plans have some exemptions to  the filing requirement, but there are some situations where the filing  may be necessary. One instance where the filing is required, is when the  Solo 401(k) plan has over $250,000 in assets. Another instance is when  the plan is terminated. Since a filing will be needed eventually, we  recommend a Form 5500 filing be done each year starting with the first  year the plan is established. Each filing sets the statute of  limitations; without the filing, and no set statute of limitations, each  plan year would be open for IRS examination.  

Black  Creek Retirement Plans, Inc. can assist you with the annual  maintenance; plan document and amendments; as well as the annual Form  5500 filings. Contact us to learn more about our services. 


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