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If the solo 401k owner is making required minimum distributions (RMDs) from his solo 401k and passes away, does the son beneficiary, for example, start to take RDMS based on his age or the deceased solo 401k owner’s age for the 10-year period?

November 18, 2023 | By Mark Nolan

After reviewing the beneficiary form and reviewing the certified death certificate, and If the son beneficiary is subject to the 10-year payout period (i.e, he is not a minor), the beneficiary distributions will be based on the son’s age and are calculated using the IRS Single Life Expectancy Table.  First, the solo 401k will need to be transferred to a beneficiary IRA and distributions will be made from the beneficiary IRA.  Once the life expectancy factor is determined in the first year, future beneficiary distributions will be determined by subtracting one for each subsequent year through year nine. The beneficiary IRA is then required to be distributed by the end of the tenth year.  .

Solo 401k

Your CPA is WRONG about the December 31st Solo 401k Contribution Tax Deadline

November 18, 2023 | By George Blower

The Real Deadline for Making 2023 Solo 401k Contributions

Many self-employed individuals are confused about the deadline for making Solo 401k contributions for the 2023 tax year. Your CPA may be telling you that you need to make all employee and employer contributions by December 31, 2023. But this is actually not the case for Solo 401k plans.

In a recent My Community Q&A webinar regarding the 2023 Solo 401k Setup Deadline, we explained that the deadline for Solo 401k contributions is different than the deadline for full-time employer plan that one might have at a “day job”:

  • For regular employer 401k plans, employee contributions must be made by December 31st of that tax year.
  • But for Solo 401k plans, the deadline is later. Employee contributions can be made up until the self-employed business tax filing deadline including any timely filed extension (e.g., for a sole proprietor this would be April 15 of the following year, or October 15 if a timely extension is filed).
  • This later deadline makes sense because self-employed individuals often don’t know their final income until after the year ends.
  • IRS Publication 560 confirms that both employee and employer Solo 401k contributions can be made up until the tax return due date, including extensions.

If you don’t already have a solo 401k, all you need to do is sign up with us by the end of the year to preserve the right to make 2023 Solo 401k contributions any time up until your self-employed business tax return deadline including any timely filed extension in 2024:

  • You only need to establish the Solo 401k plan by December 31, 2023 to make 2023 contributions in 2024. This simply involves signing the adoption agreement.
  • You do not need to obtain an EIN, open any bank accounts, or make contributions by December 31, 2023.
  • Employee and employer contributions for 2023 can be made after year-end, up until the tax return due date with extensions.
  • IRS Publication 560 clearly states the extended deadlines for Solo 401k contributions.

The Bottom Line

So while your CPA may think there is a December 31st deadline to make Solo 401k contributions, you actually have until your tax return due date next year to make 2023 Solo 401k contributions. Just be sure to open an account by December 31, 2023!

Solo 401k

Determining the Solo 401k Plan Entry Date for Non-Owner Full-Time W-2 Employees

November 17, 2023 | By Mark Nolan

QUESTION:

I have a quick question for you please about the Solo 401k plan. If the business hire employees, do we immediately become ineligible for the solo 401k or do we have a 1 year grace period?

ANSWER:

Once the W-2 employee works 12 months and 1000 hours or more for your business, the solo 401k plan will need to be converted to a full-time employer 401k (traditional 401k) or transferred to an IRA. 

 The First 12-month period commences on W-2 employee’s date of hire. 

EXAMPLE

If your business hired Fred on November 5, 2023, Fred’s first 12-months of work for 401k eligibility purposes will be from November 5, 2023, through November 4, 2024. Therefore, if Fred works 1,000 hours or more between November 5, 2023, and November 4, 2024, he has met the 401k eligibility requirements. 

The Plan Entry Date

There are 2 (two) 401k plan entry dates–January 1, and July  1. 

Depending on when in the year the W-2 employee met the 12 month and 1,000 hour eligibility requirements, the solo 40k plan will need to be converted to a full-time employer 401k and offered to the W-2 employee.  

Based on the above Fred example, if the solo 401k plan is not transferred to an IRA, the solo 401k plan will need to be converted to a full-time employer 401k and offered to Fred for participation by January 1, 2025 (the entry date).   

Solo 401k

Can I Invest the Solo 401k in Futures with a Futures Brokerage Firm?

November 14, 2023 | By Mark Nolan

QUESTION:

Hope you’re well.  I am looking into opening an account with a Futures brokerage firm to trade futures.  Is this something I can do via the solo 401k?

ANSWER:

Yes, the solo 401k can invest in futures. When you open the brokerage account for trading futures, the account will need to be opened in the name of the solo 401k using its EIN.

Solo 401k

2023 Solo 401k Setup & Contribution Deadlines for Partnership/LLC taxed as Partnership/K-1

November 14, 2023 | By Mark Nolan

If you plan to open a solo 401k in 2023 so that you can make contributions (both employee and employer) in 2024 by your business tax return due date plus extension, be aware of the upcoming December 31, 2023 solo 401k setup/adoption deadline especially if you want to be able to make employee/deferral contributions.

With a solo 401k, the IRS considers the owner-only employee to wear 2 (two) hats–one as an employee of the business and the other as the employer. On the employee side, you can contribute up to $22,500 for 2023 plus an additional catch-up amount of $7,500 if you are 50 or older in 2023. On the employer side, you can also make an additional contribution of 20% of the adjusted net earnings (line 14 Code A) found on Schedule K-1. The overall solo 401k contribution limit for 2023 consisting of both employee and employer contributions is $66,000 or $73,500 if age 50 or older. As a result, the solo 401k allows for higher contributions than a SEP or SIMPLE IRA.

In sum, you will want to start/adopt (i.e., sign the solo 401k establishment documents) the solo 401k by 12/31/2023 if you want to reserve right to make both employee and employer contributions for 2023 in 2024 by your business tax return including extension; otherwise, if you wait to adopt the solo 401k plan until 2024 but by your business tax return plous extension, you will only be able to make employer/profit sharing contribution for 2023 thanks to the SECUR ACT. To get started with opening your solo 401k, please click here. 

Uncategorized

Solo 401k for a Multi-owner S Corp

November 13, 2023 | By Mark Nolan

QUESTION:

We are exploring setting up a Solo 401k for all 4 owners of our S Corp. There are no employees beyond the 4 shareholders. Can you arrange a Solo 401k for our situation? (4 shareholders of an S Corp)?

ANSWER:

Yes, provided the S-corporation does not employ any non-owner full-time W-2 employees, a solo 401k may be set up/sponsored by an S-corporation with 4 owner only employees. The solo 401k plan would be sponsored by S-corporation and each owner employee would have their own separate participant accounts under the solo 401k plan to hold their respective contributions/funds. Each owner-employee would then qualify to maximize their annual contributions to the solo 401k which would be based on their separate W-2 payments from the S-corporation. To learn more about how the contribution is calculated when the business is a corporation, visit here.

Solo 401k

2023 Solo 401k Setup & Contribution Deadlines:C-corporation, S-corporation/LLC taxed as S-Corporation /W-2

November 12, 2023 | By Mark Nolan

The 2023 solo 401k setup deadline is fast approaching if your business is taxed as a C-corporation, S-corporation or an LLC taxed as an S-corporation. If you want to make employee pretax or employee Roth solo 401k contributions for the year 2023, then the solo 401k must be adopted by 12/31/2023. This means you simply need to sign the solo 401k plan documents by 12/31/2023 so that you can make a solo 401k contribution for 2023 in 2024 by your business tax return due date plus extension.

Otherwise, if you wait to open the solo 401k (i.e., sign the solo 401k documents) until 2024, you will be able to make employer profit sharing contributions and voluntary after-tax contributions but not pre tax employee or Roth solo 401k contributions.  Clicke here to get started.

Solo 401k
Uncategorized

2023 Solo 401k Setup & Contribution Deadlines:Sole Proprietorship/Single-Member LLC taxed as Sole Proprietor/1099-NEC Independent Contractor

November 12, 2023 | By Mark Nolan

While the SECURE 2.0 extended the solo 401k set up deadline to April 15, 2024 for a sole proprietorship, an LLC taxed as a sole proprietorship as well as a 1099-NEC, it is alway best to open the solo 401k by 12//31/2023 so that you don’t forget to take advantage of the favorable solo 401k contribution limits.  

 Therefore, by signing the solo 401k plan establishment documents including the Adoption Agreement by 12/31/2023 or by 04/15//2023, you will be able to both open and fund the solo 401k holding accounts (i.e., the bank or brokerage accounts) by the business tax return including extension. Click here to get started.

Solo 401k

How to Guide-Mega Back Door Roth Solo 401k Conversion of Fidelity Non-Prototype Solo 401k Brokerage Account to Roth IRA at ETRADE

November 10, 2023 | By Mark Nolan

My Solo 401k Financial clients also have the option to convert their voluntary after-tax solo 401k funds held in a non-prototype brokerage account at Fidelity Investments to their ETRADE Roth IRA.

  • How to open a mega backdoor Roth solo 401k with My Solo 401k Financial-CLICK HERE.
  • How open the solo 401k non-prototype brokerage accounts at Fidelity Investments- CLICK HERE.
  • How to convert the voluntary after-tax solo 401k funds from Fidelity Investments to the Roth IRA at ETRADE- CLICK HERE.
  • How to report the non-taxable conversion of voluntary after-tax solo 401k funds to the ETRAE Roth IRA- CLICK HERE.

The Form Fidelity Will Need to Mail the check to ETRADE for Deposit to the Roth IRA at ETRADE

Click here to view the Form Fidelity invesments will need.

COMPLIANCE NOTE:

Conversions are reported in the year that the funds are actually moved over to the Roth account. 

The solo 401k contribution rules are different from the  conversion rules. Contributions can be made by your business tax return due date plus any timely filed extension for the prior year.

In sum, the voluntary after-tax solo 401k conversion will be nontaxable regardless if  you convert the after-tax contributions that were made in 2022 or in 2023 for 2022.

Solo 401k

Can I use both Pre-Tax and Roth Solo 401k funds to make a Self-Directed Solo 401k investment?

November 10, 2023 | By George Blower

Please check out this good question from our Daily Live Zoom call. Subscribe to our YouTube Channel to get notifications of our Daily FAQs.

Can I use both Pre-Tax and Roth Solo 401k funds to make a Self-Directed Solo 401k investment?

Q: I have money in both a pre-tax and Roth solo 401k account. Can I use funds from each account to purchase a Solo 401k rental property investment?

A: Yes, it is possible to use both pre-tax and Roth funds from a solo 401k plan to invest in the same real estate property. Here are some key points:

  • You must be eligible to set up a solo 401k – meaning you are self-employed with no full-time W2 employees (other than a spouse).
  • The solo 401k plan must allow for real estate investing and Roth contributions like our plan does.
  • The property purchase cannot be a “prohibited transaction” – for example, you cannot buy property you or a related person already owns.
  • The property title would transfer from the unrelated seller to the solo 401k account. You can use pre-tax and Roth funds for the same purchase. The purchase is still under one solo 401k entity, with transfers coming from each subaccount. For simplicity, rent payments can go to one account and be allocated between pre-tax and Roth based on investment ratios.
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