Author: Paul A. Carl, CHSA, CPFA^™ Vice President, Retirement Plan Consulting, Registered Representative

Short answer: YES. Read-on for the longer answer.

From time to time, I’m approached by someone who has a question about a Solo 401(k) Plan. Storylines are similar – I created a Solo 401(k) Plan while I worked as a self-employed, independent consultant. I stopped funding the Solo 401(k) Plan after several years because I started working for “Company X.” I’ve let the fully invested Solo 401(k) Plan sit for a few years. My balance is $300,000 (or $400,000 or $500,000…). Can I roll this money over to an IRA or the Company X 401(k)?

While the answer to the rollover question is ‘yes,’ that’s possibly not the most important question. The real question is, “Did you start filing the Form 5500-EZ (or Form 5500-SF) when your Solo 401(k) Plan value exceeded $250,000?" Sometimes the answer to that question is "No" or "Huh?". Other times it's, "What do you mean?" Often it's a combination of those responses accompanied by a puzzled facial expression.

Solo 401(k) Plans have relatively uncomplicated rules that need to be followed. If you sponsor a Solo 401(k) Plan, consider asking yourself the following questions to help you follow those rules:

• Do I have a signed and dated plan document?
• Has the plan document been amended and restated for the current 6-year amendment and restatement cycle deadline of July 31, 2022?
• Do I keep an accounting of all contribution sources such as employee pre-tax and Roth deferrals, employer match and profit sharing contributions, rollovers?
• Have I filed a Form 5500-EZ for every year that the balance in my Solo 401(k) Plan exceeded $250,000?
• If/when I terminated my Solo 401(k) Plan, did I file a Form 5500-EZ (regardless of asset market value)?

The best response to each question is “yes.” 

While each item may seem simple, the easiest and most frequently overlooked may be the Form 5500-EZ filing. For anyone who has not received an IRS penalty notice for an overdue form, the IRS has granted relief to the non-filer (IRS Rev. Proc. 2015-32). Pursuing the relief means following certain procedures outlined by the IRS including the payment of a $500 per delinquent return fee, up to $1,500 per submission for the same plan. While this may seem costly, consider that without the relief program, a non-filer could face a $250 per day fine up to $150,000 for each late Form 5500-EZ filing, plus interest.

Is your Solo 401(k) Plan fully compliant?

HORAN Capital Advisors, LLC is an SEC registered investment advisor. The information herein has been obtained from sources believed to be reliable but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results. Market conditions can vary widely over time and there is always the potential of losing money when investing in securities. HCA and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.