Solo 401k Rules: Am I required to make “substantial and recurring” contributions to my self-directed Solo 401k?

QUESTION:

I attended a small business conference which included a presentation on 401k plans.  The presenter stated that in order to keep a 401k plan in compliance “substantial and recurring” contributions must be made to the plan.  How does this requirement apply to my Solo 401k? Am I required to contribute to the plan every year?

ANSWER: 

First, the IRS clearly states that the employer does not need to contribute to a 401k plan every year. 

For certain employers, if contributions are not made for several years it can create a presumption that the plan has been discontinued.  For example, if a business offers a 401k plan in which non-owner employees participate and are not 100% vested, this issue is one of several different factors that the IRS considers in determining whether a plan is discontinued (e.g. if the employer has been profitable but has not made any profit-sharing contributions in 3 of the last 5 years).   

With regards to Solo 401k plans:

  • The IRS’s own Internal Revenue Manual states that this is not an issue if plan participants are fully vested at all times.
  • Since all participants in your 401k are 100% fully vested (i.e. you), this is not an issue per the IRS guidance.

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About George Blower

I have the privilege of educating our clients about our products and services so that they can make informed and confident decisions about their financial future. Prior to joining My Solo 401k Financial, I served as the general counsel for a subsidiary of a Fortune 500 financial services company. Learn more about George Blower and My Solo 401k Financial >>

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