Common Questions Regarding the Fidelity Brokerage Account for Self-Directed Solo 401k

Q: How long does it take to open?

ANSWER:

It takes 4 to 6 business days to open the checkbook brokerage account for a solo 401k offered by My Solo 401k Financial with Fidelity Investments.

Q: How much does it cost?

ANSWER:

Fidelity Investments does not charge a setup fee for a brokerage account for the solo 401k offered by My Solo 401k Financial.

Q: Is Fidelity Investments responsible for any reporting under the solo 401k offered by My Solo 401k Financial?

ANSWER:

No as the solo 401k trustee and My Solo 401k Financial handle the solo 401k reporting (e.g., Form 5500-EZ).

Q: How do I place investments under the solo 401k?

ANSWER:

If processing an alternative investment such as real estate or promissory note, by writing a check or by submitting a wire directive to Fidelity Investments. If an equity investment such as publicly traded stock or mutual fund, you will logon to the Fidelity Investment brokerage account and process the trade on-line.

Q: What fees does Fidelity Investments Charge?

ANSWER:

Fidelity does not charges stock trading fees, and charges $15 per wire fee. The brokerage accounts also comes with a free checkbook for placing alternative investments and for processing the solo 401k participant loan.

Q: Both me and my brother each own our own LLC’s and have solo 401k plans.  The LLC’s have no employees.  We would like to roll over our solo 401k plans with Fidelity currently into self-directed 401ks and invest in real estate.  Is it possible for us to use our self-directed 401ks to purchase real estate together?  For example could we each use our 401ks to purchase 50% of an apartment complex?

 

ANSWER:

Yes such transaction is allowed under a TIC or LLC arrangement. Click here to learn more. Our self-directed solo 401k plan allows for investing in real estate so we can restate both existing Fidelity solo 401k plans to our plan and then walk you through the proposed real estate transaction.  Lastly, the following page explains the self-directed solo 401k arrangement whereby you can continue to use Fidelity Investments as the custodian of the cash.

Q: I currently have traditional IRA and already contributed for the year 2020.  My income is expected around $100,000.  It looks like if I have traditional IRA and have 410k, the deduction level depends on income.  Over $75,000 has no deduction on traditional IRA.  In this case, what should I do for my traditional IRA ?  Should I convert to Roth IRA or convert to 401k once opened up ?

ANSWER:

You will need to confirm if the traditional IRA contribution is deductible. If it is not deductible then you cannot transfer it to the Solo 401k and could transfer it to a Roth IRA if you wish. Please see more here: https://www.mysolo401k.net/can-i-contribute-to-a-solo-401k-roth-ira-and-traditional-ira-for-2020/

Q: Once I open a solo 401k from Fidelity, how can I contribute ?  For  personal contributions, money is coming from a personal account or a business account ?

ANSWER:

From a Solo 401k perspective you can contribute to the Solo 401k from either your personal or business account. 
  • You can either write a check for your contributions and deposit it at a Fidelity branch. You can find the nearest Fidelity branch using Fidelity’s online branch locator: http://www.fidelity.com/branchlocator/
 
  • Alternatively, you can mail the check to Fidelity Investments: Below is the overnight mail address.

 

Fidelity Investments, 100 Crosby Parkway KC1H, Covington, KY 41015

Below is the Post Office Box mailing address
Fidelity Investments, P.O. Box 770001, Cincinnati, OH 45277-0048  

 
  • Lastly, you can send in contributions via ACH by setting the ACH up at your banking institution. Below is the link to Fidelity’s ACH instructions:
 

Q: For company match, match contribute to each payroll period or at the end of the year ?

ANSWER:

First, I believe you are referring to the profit-sharing or Employer contribution.  Matching contributions only apply to full-time employer 401k plans, not self-employed solo 401k plans. A solo 401k only consists of employee and profit sharing contributions. Matching is when the employer matches what the employee has contributed. Profit sharing contributions are employer contributions as well but are not based on whether the non-owner  employee has contributed. You can make one lump sum contribution by your entity tax return deadline or timely filed extension.

Q: Is it possible for you to utilize one of my existing brokerage accounts (I already had quite a few)? or does it just need to be a brand new account?

ANSWER:

New accounts are needed at Fidelity.

Q: When do I need to make the 2020 tax year Mega Backdoor Contributions?

ANSWER:

You have until your business tax return deadline in 2021 including any timely filed extension to make 2020 contributions including employer, employer and voluntary after-tax.  See more here: Solo 401k Deadlines – My Solo 401k Financial

1) Please see the following regarding the mechanics of making Mega Backdoor Contributions.

2) Please note that voluntary after-tax contributions need to be made to a separate sub-account.  If you don’t have a separate sub-account please let us know so that we can help you set one up.


CONSIDERATIONS REGARDING MAKING VOLUNTARY AFTER-TAX CONTRIBUTIONS:

  • Our plan allows you to make voluntary after-tax contributions.
  • Please see below information regarding limits and mechanics of making contributions.
  • Please also see the following link: §  Mega Back Door Roth
  • Please let us know when you make voluntary after-tax contributions and convert to the Roth 401k sub-account so that we capture the information needed for 1099-R reporting.

How Much Can I Contribute to my After-Tax Sub-account for 2020?

Generally speaking, the amount of 2020 after-tax contributions that can be made to the Solo 401k is determined as follows:

  • 2020 After-Tax Contribution Limit: Lesser of (1) 100% of compensation or (2) the overall limit that applies the year for which the contribution is made (e.g. $57K for 2020))  LESS any other Solo 401k contributions (e.g. elective deferrals (either roth or pre-tax) OR profit sharing)
  • If the entity type is a Sole Proprietor (or a single-member LLC taxed as disregarded entity), self-employment compensation is equal to line 31 of Schedule C LESS deducting one-half of self-employment tax.
  •   If the entity type is an SCorporation, it is equal to W-2 income from your self-employed business (“Box 1 plus any pre-tax elective deferrals NOT in Box 1).

General Information regarding Solo 401k Contributions (2020):

Solo 401k contributions are based net- income from self-employment (i.e. you can’t contribute more than you make).

You can make the contributions from your business or personal checking account as long as the funds stem from self-employment income.

The total contribution limit for tax year 2020 is $57,000 plus an additional $6,500 catch if age 50 or older.
To make the contribution, you will make the check payable in the name of the solo 401k and write “Annual Contribution” on the memo section of the check.

You can use our on-line solo 401k contribution calculator to calculate the contribution amount.

Here is the link and it works best on Internet Explorer browser [note: the online calculator shows the limits for 2019 as many customers are still making 2019 contributions].

https://www.mysolo401k.net/Calc/Individual401kContribution.html

You may also use the online annual contribution form located on our website to internally document the contribution. This form is for your records only.

https://www.mysolo401k.net/wp-content/uploads/2014/09/Solo_401k_Annual_Contribution_Form.pdf

Here is additional information regarding the solo 401k contribution rules.

Solo 401k Contributions

The business owner acts in both capacities in a solo 401k plan: employee and employer.  As such, the business owner can make both contribution types: employee and employer. (Note: Matching contributions do not apply to a Solo 401k plan).

Type 1 Contribution (Employee): Employee contributions also known as elective deferrals up to 100% of net earnings from self-employment income up to the annual contribution limit; Note: See information below regarding how to determine your self-employment income for contribution purposes since it depends on how your self-employed business is organized (e.g. sole proprietor, S-Corp, etc.).

2020: $19,500 plus an additional $6,500 catch-up contribution if you are 50 or older; and

Note: If the Solo 401k participant is participating in another qualified plan such as a 401k plan offered through a w-2 “day job,” any employee contributions made by the individual to such plan will be aggregated with any employee contributions made to the Solo 401k plan in determining whether the limit has been met.

Type 2 Contribution (Employer): Employer profit sharing contributions up to:

  • If taxed as an unincorporated business (e.g., sole proprietor or partnership) then 20% of net business income (i.e. from Line 31 on Schedule C or Line 14 of K-1 as applicable) after deducting one-half of self-employment tax; or
  • If taxed as a corporation, then 25% of w-2 income.

Note: For a solo 401k with multiple participants (e.g. husband and wife), the employee & employer contribution limits are calculated for each participant individually (i.e., based on each person’s self-employment income).

Total Contributions: Total contributions to a solo 401k plan cannot exceed $57,000 for 2020, plus an additional catch-up amount of $6,500 if age 50 or older.  Please note that if you intend to also make Roth and/or after-tax contributions, please contact us for more information on making such contributions.

IMPORTANT:  The annual solo 401k contribution limits depends on the type of entity sponsoring the solo 401k plan.

  • If the entity type is a Sole Proprietor, it is equal to line 31 of Schedule C(after deducting one-half of self-employment tax).
  • If the entity type is a C-Corporation, it is equal to W-2income from your self-employed business (“Box 1 plus any pre-tax elective deferrals NOT in Box 1).
  • If the entity type is an SCorporation, it is equal to W-2income from your self-employed business (“Box 1 plus any pre-tax elective deferrals NOT in Box 1).
  • If the entity type is a Partnership, it is equal K-1 (Form 1065) line 14 from your self-employed business (after deducting one-half of self-employment tax).

Note: To determine the amount equal to one-half of the self-employment tax, please take the following steps:

  • Navigate to our online calculator: https://www.mysolo401k.net/Calc/Individual401kContribution.html
  • For Business Type: select “Unincorporated Sole Proprietorship”
  • Enter your net income as applicable (e.g. for a Sole Proprietor enter net income from line 31; for a Partnership enter Line 14 from your K-1).
  • Enter your age
  • Click “View Report”
  • In the sentence beginning “*Calculated as net business income…” the amount equal to one-half of the self-employment tax will appear in the phrase “Self-Employment Tax of ___”

 

Solo 401k Contribution Deadlines:

The self-directed 401k contribution deadlines are based on the type of entity sponsoring the solo 401k.

  • If the entity type is a Sole Proprietorship, the annual solo 401k contributiondeadline is April 15, or October 15 if tax return extension is timely filed.
  • If the entity type is an LLC taxed as an S-Corporation (calendar year), the annual solo401k contributiondeadline is March 15, or September 15 if tax return extension is timely filed.
  • If the entity type is an LLC taxed as a Partnership (calendar year), the annual solo 401k contributiondeadline is March 15, or September 15 if tax return extension is timely filed.
  • If the entity type is a Partnership (calendar year), the annual solo 401k contributiondeadline is March 15, or September 15 if tax return extension is timely filed.
  • If the entity type is an S-Corporation (calendar year), the annual solo 401k contributiondeadline is March 15, or September 15 if tax return extension is timely filed.
  • If the entity type is an C-Corporation (calendar year), the annual solo 401k contributiondeadline is April 15, or October 15 if tax return extension is timely filed.

Making Voluntary After-Tax Contributions

What is the maximum amount of voluntary after-tax contributions that I can make?

You can contribute up to the lesser of (i) 100% of your self-employment compensation (i.e. see below information regarding how to determine your self-employment compensation) or (ii) the overall limit ($55,000 for 2018 contributions, $56,000 for 2019 contributions) reduced by any pre-tax or Roth employee contributions/salary deferrals and any pre-tax employer/profit sharing contributions.

The amount of self-employment compensation depends on the type of entity sponsoring the solo 401k plan [SEE ABOVE].

 

When is the deadline to make voluntary after-tax contributions?

The self-directed 401k contribution deadlines are based on the type of entity sponsoring the solo 401k. [SEE ABOVE].

How do I make the voluntary after-tax contributions?

  • To make the contribution, you will make the check payable in the name of the solo 401k and write “Annual Contribution” on the memo section of the check.
  • Deposit the amount of the voluntary after-tax contributionsthat you elect to make in the separate voluntary after-tax sub-account.
  • You will then transfer the funds to the Roth sub-account for the Solo 401k(or Roth IRA).  Please let us know right away when you do so that we can send you the applicable forms to capture the information that we need to handle the required 1099-r (which we will do as part of our services for no additional charge).

Where do I report the voluntary after-tax contributions?

  • For self-employment income reported on a w-2, you may (but are not required to) report voluntary after-tax contributionsin Box 14 of the w-2.
  • For all others, there is no place to report voluntary after-tax contributions.

Where do I report the conversion of funds form the voluntary after-tax subaccount to the Roth sub-account?

  • On Form 1040, report the amount converted in Line 4a and “0” in Line 4b unless there is a taxable gain.  Enter the word “Rollover” next to line 4b.
  • A taxable gain would result if the funds in the after-tax account accrued a gain after being contributed to such account in which case the amount of such gain is a taxable and needs to be listed on Line 16b.

Making Contributions Electronically to Fidelity Accounts: 


Regarding making electronic deposits via ACH to the Fidelity account:

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

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