Solo 401(K)

Submitted by michael steinebach on Mon, 2019-11-18 19:16

Have a client who has a solo 401(k). Client hired his son in 2018 as a W2 employee. Client contributed to Solo 401(k) in 2018 and in 2019. I know the owner has to close the solo 401(k) down, but what do I need to do? Is there a grace period before the client has to shut the solo 401(k) plan down?



Submitted by William Tuttle on Tue, 2019-11-19 06:32

  • A plan may adopt employee eligibility restrictions. They may limit eligibility to those >= age 21 and/or with >= one year of service with >= 1000 hours employment.
  • Vanguard’s Individual 401k does not allow any such employee eligibility restrictions.
  • E-Trade, Fidelity, Schwab and TD Ameritrade allow the above employee eligibility restrictions, but they must have been elected in the adoption agreement when adopting the plan or amended prior the the employee’s date of hire.
  • With the Vanguard plan or one of the other plans where no election was made, the employee was eligible on the date of hire.
  • With the other plans and elections in effect prior to the date of hire, the employee would become eligible when meeting the requirements.
  • In any of the cases, the one participant 401k plan should have been terminated, frozen, or amended to a small business 401k plan prior to the date of employee eligibility.
  • If not no contributions by the client were allowed and the plan committed 401k plan operational errors.
  • These would need to be corrected under the IRS Employee Plans Compliance Resolution System (EPCRS). There is recent IRS guidance in Revenue Procedure 2019-19.
  • This should be reviewed by a competent professional.

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