Individual 401k husband & wife contributions pooled into single brokerage account

Submitted by Samuel Melton on Tue, 2023-01-03 04:42

Beginning in 2017, a business made profit sharing contributions in the name of both owners into a single individual 401k account. The business is owned by husband wife team and was self administered. The plan custodian is unable to make a non taxable transfer of the contributions made in the wife’s name into a new plan participant account. The custodian did not have answer on how to proceed with separating the contributions.

Is there a solution in this scenario that allows the wife’s contributions to be rolled over into her individual 401k account?



Submitted by William Tuttle on Tue, 2023-01-03 14:02

  • If the wife has significant assets a solution might be possible, but could be expensive.
  • I suggest contacting a Professional TPA to see if the following might be possible.
  • I am not a professional, but there may be a possible solution. This is a recordkeeping error that the one-participant 401k plan provider does not want to help solve because they are low cost no frills providers.
  • Contrary to popular belief, the IRS is often reasonable when errors have been made.
  • The IRS Employee Plans Compliance Resolution System (EPCRS) exists to correct errors to a 401k plan. I believe this would be considered an operational error.
  • If this is considered an insignificant operational error it could be corrected under the Self-Correction Program (SCP). Which permits a plan sponsor to correct certain plan failures without contacting the IRS or paying a fee.
  • If this is considered a significant error. Since the two-year period has elapsed. It would have to be corrected under the Voluntary Correction Program (VCP). Which permits a plan sponsor to, any time before audit, pay a fee and receive IRS approval for correction of plan failures.
  • The tax code and IRS regulations do not explicitly refer to 401k separate accounts. They only refer to separate accounting.
  • Therefore, here is my solution.
    • Amend the one-participant 401k plan to a different 401k plan provider that use a pooled account. This is where all plan assets are in a single account with separate accounting for each participant’s account(s). This is done by using the amendment section of the new provider’s adoption agreement.
    • Do a trustee -> trustee transfer of the plan assets from the current custodian to the new custodian.
    • Reconstruct each participant’s contributions and earnings into their proper separate accounting.
    • It is important to understand that this is still the same exact 401k plan. You are just correcting the separate accounting.
  • I would first contact a bundled one-participant 401k provider such as Employee Fiduciary. Explain the situation and ask if they would undertake the process for an additional fee.
  • Then search out a independent third party administrator (TPA) as an alternative.
  • As a non-professional I can not assure you that this is possible. It is certainly worth a try.

    • Submitted by Samuel Melton on Thu, 2023-01-05 20:20

    The solution you have provided appears to be valid. A sales rep at Empoyee Fiduciary stated it would not be an issue to transfer the plan assets into a pooled account and then seperate the contributions into two accounts, as described in your reply. Employee Fiduciary would charge only standard account setup fees. No additional cost to seperate the contributions and no tax reporting necessary. Knowing that there is a solution, the pros and cons of independent TPA vs bundled service will now be considered before deciding on a new plan administrator. Thank you for taking the time to provide your thoughts. 

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