BACKGROUND & QUESTIONS:
I just received schedule K-1s for several investments made through my solo 401k. The Part II was handled quite differently by two different funds. Probably because I did not give them the correct info when completing the initial subscription paper. Shall I contact the fund for a corrected K1?
ANSWER:
The partnership issues the Schedule K-1 to report the self-directed solo 401k plan’s share of the partnership’s income.
You simply need to keep it for your records.
Do not file it with your solo 401k tax return, business tax return or personal tax return.
Instead, the partnership files a copy of Schedule K-1 (Form 1065) with the IRS. While it does not generally trigger the payment of taxes by the solo 401k unless the solo 401k invested in a business that offers goods or services (i.e. business activities), the partnership is required to file a copy with the IRS.
Pertinent Sections of the Schedule K-1 That Apply to the Solo 401k Plan
In Part II: Information About the Partners
E: Partner’s SSN or TIN: List the EIN for the solo 401k NOT your SSN or your business EIN.
F: Name, address, city… List the address for the solo 401k NOT the solo 40k providers address.
I2: If this partner is a retirement plan (IRA/SEP/KEOGH/etc.: Make sure this box is checked off since a solo 401k is a retirement plan type.
Errors
If you believe the partnership has made an error on your solo 401k plan’s Schedule K-1, ask the partnership to make the correction(s) as you cannot make the updates yourself. Then ask the partnership to provide you and the IRS with a corrected copy.
Pre-Planning:
When the solo 401k first makes an investment in a private entity such as a limited partnership, for example, that is when you will first want to provided the solo 401k’s name and its EIN so the investment sponsors issues the Schedule K-1 properly (i.e., in the name of the solo 401k using the the plan’s EIN). Visit HERE to learn how to fill out Form W-9 which can be provided to the investment sponsor to assist them in properly issuing the Schedule K-1 to the solo 401k plan come tax time.
Roth Solo 401k Investmet QUESTION:
ANSWER:
If a schedule K-1 is issued for an investment made by the solo 401k plan, then the form is generally for your records and you do not file it with the IRS. Make sure to review the Schedule K-1 to ensure it was issued correctly–in the name of the solo 401k using the solo 401k plan’s EIN. Yes, the gains in the Roth solo 401k grow tax free and may be distributed tax free once you reach age 59 1/2 and have had the Roth solo 401k for at least 5 years.
