Solo 401(k) and T.I.N.
The financial institution with whom I’ve setup a solo 401(k) for my Schedule C business (LLC) constructed the account under my personal SSN, instead of my LLC’s TIN. I’ve battled with them for a half-year to change this, and yesterday they’ve finally said they simply will not do it.
Their justification is that it’s irrelevant since they have no regular reporting requirements to the IRS. They only report if I take a distribution (on a 1099-R) and I, as an individual, will be taking it – not my company. They say the SSN vs. TIN situation will be obvious to the IRS when *I* report on my annual form 5500 where I label the “employee contribution portion” against my SSN and label the “employer contribution portion” against my business (and its TIN).
Is it true that a 401(k) custodian has no regular reporting requirements to the IRS independently of the annual 5500 (which is filed by the business holding the account)? I have with-held the first year’s contributions to this plan until this situation is resolved, thinking that it may be better to pay the larger tax burden now by not contributing (which is a significant amount unfortunately) than to risk the IRS later recategorizing the plan (and hence the contributions) as *not* tax deferred.
Am I being overly concerned about what, in effect, my financial institution says are its “internal affairs” concerning the account? Will the IRS simply “figure it out” between my SSN and business’s TIN, both of which will be listed on my individual tax return and my annual form 5500?
Many thanks!
Permalink Submitted by Denise Appleby on Sun, 2007-08-12 00:18
It does not appear you have anything with which to be concerned. While your business’s TIN can be reflected on the records for your account, your social security number must be recorded in areas that will be transferred to any 1099-R reporting- for self-directed accounts . Solo-k are usually established as self-directed ( individual) accounts in the name of the Plan , FBO the participant. For example:
John Pano Solo-K Plan
FBO John Pano
ABC company as Custodian
For self-directed accounts, the participant’s social security number must be used .
This is unlike omnibus accounts, where the Plan’s TIN and the EIN is usually used on the plans-account . ( An omnibus account is one in which assets for more than one employee is pooled)
Please post any follow-up questions.
Denise
http://www.retirementdictionary.com
Permalink Submitted by Jon Holston on Tue, 2007-08-14 18:59
Denise, you are a gem. I’ve all but given up on the idea of ever getting a straight answer from the financial institution as to “why” they won’t do it … and have even had an extraordinary time simply getting them to say in writing that they WON’T do it (still do not have this letter). Yours is the most sensible response explaining the potential reason behind their decision.
It’s so very ironic that I only got the TIN for my LLC [i]solely because of the 401(k) plan![/i] I heard/read from a couple of different sources (including the IRS) that, in order to open a 401(k) plan, a business needed its own TIN. At this point, I’m assuming that is only for “full” (omnibus?) 401(k) plans and not the new Solo products on the market. If only I had known this at the time (sigh) … because now I have a TIN that I don’t need, income already booked for last year against my SSN (not my new TIN), and a Solo 401(k) plan that won’t use it either! I’m wondering if I can “give it back” to the IRS lol.
Jon
Permalink Submitted by Denise Appleby on Wed, 2007-08-15 11:54
I think you still need the TIN.
You may notice (at least on those that I have seen), that you are asked to provide your business’ TIN on the adoption agreement used to establish the Solo-K Plan. It is true that the custodian/financial services provider will not need your TIN to report distributions, but they may need it if you have an arrangement with them to file any required 5500 on your behalf. But it’s not so much about the financial institution, as it is about you filing your returns- where the TIN is concerned
Self-employed individuals may also use the TIN on their Schedule C. I understand that the IRS prefers this as it helps them to distinguish the individual from the individual’s business. But it is really necessary only if the Self-employed individual maintains a qualified plan for his/her business- or have employees.
Partnerships and Corporations must have TINs for the businesses
In fact, you may find that you need separate TINs for the Solo-K Plan and your business.
See the IRS’ response to “Do You Need an EIN?” at http://www.irs.gov/businesses/small/article/0,,id=97872,00.html