close S corp? - changing to new W2 job

[dmlr06]

Hi,

For the last few years, my main job has been a 1099 job.  My CPA helped me to open an S corp in 2014.  I am now starting a full-time W2 job.  I have a solo 401k through my S corp currently.  I am set up to contribute to that solo 401k in 2017 commensurate with my limited 1099 work in 2017 (expecting 10-15K in 1099 income in 2017).  But going forward in 2018, I don't plan to do much 1099 work.  The CPA fees don't even make the S corp worth it since it's only a side gig.

So, is there a downside to closing it?  I saw that I could do that on legal zoom.  I just want to minimize my (CPA)losses & time spent managing the paperwork.  In 2018, I will have enough retirement contribution from my new job that I won't need to contribute through the S corp to my solo 401k to meet our retirement goals.

Advice appreciated!

Thanks!

[jfoxcpacfp]

You don't need LegalZoom to close it lol. Just file Articles of Dissolution with your state and close your payroll tax accounts (mark final returns "Final"). There is no reason I know of to keep your s-corp open unless you have a basis issue (I won't even go into that) and in your profession, I am 99.99% sure that you don't.

Any 1099 work you have in the future can just go on a schedule C.

[dmlr06]

Great!  Thanks.  Nice to know I can save some $$ and avoid legal zoom.

[spiritrider]

Just be aware that if you close the S-Corp, you will have to terminate the solo 401k. When you terminate a solo 401k, you must file an IRS Form 5500-EZ. Failure to file or late filing of the 5500-EZ, can incur substantial IRS penalties.

If you are going to have some minor self-employment, it might be better to amend the solo 401k to a sole proprietorship business after your last tax year of the S-Corp.

[jfoxcpacfp]

@spiritrider brings up a good point. Just to clarify, however, "terminating" a 401k does not mean it is no longer a 401k. You are terminating the "plan", not the 401k itself. You must file a final report letting the IRS know that it is no longer active for contributions and any other activity, such as borrowing from it.

[dmlr06]

So, can I leave my solo 401k at Fidelity if I close my S corp?  I don't want to roll it over to an IRA because I plan to do backdoor Roth IRAs.

[jfoxcpacfp]

dmlr06 wrote:

So, can I leave my solo 401k at Fidelity if I close my S corp?  I don’t want to roll it over to an IRA because I plan to do backdoor Roth IRAs.

Click to expand...

Yes, you can.

[jfoxcpacfp]

dmlr06 wrote:

So, can I leave my solo 401k at Fidelity if I close my S corp?  I don’t want to roll it over to an IRA because I plan to do backdoor Roth IRAs.

Click to expand...

Yes, you can.

[spiritrider]

dmlr06 wrote:

So, can I leave my solo 401k at Fidelity if I close my S corp?  I don’t want to roll it over to an IRA because I plan to do backdoor Roth IRAs.

Click to expand...

A 401k plan can not exist without an employer sponsor. Although, I think you have something like a year before you have to terminate the plan after the closing of the business.

You said that you will continue to have 1099 revenue, but it will be much less. So you will be moving forward as a sole proprietor (an employer). That is OK, because there is no minimum revenue requirement. You also can have years with no net self-employment income and still keep the SE 401k.

What I would do is call Fidelity and talk to their small business retirement plan specialists. They would have the best way to switch from the S-Corp to a sole proprietorship. I believe you should be able to accomplish this with just filing amended adoption agreement(s). I don't believe you need to terminate the SE 401k.

The thing I'm not sure of is how you would handle the EIN issue.

[dmlr06]

For anyone else in a similar situation, I called Fidelity and clarified with them.   I have 1 year to terminate the plan for my solo 401k.  The guy on the phone recommended converting it to a TIRA until I told him I planned to do backdoor Roth IRAs.  He said that I could either roll it over to my new employer sponsored 401k (which I am unlikely to do because I expect that will have higher fees although I am not yet sure) or just keep it there.  The only thing is that I can no longer contribute to it, of course.  I could still rebalance or move to new funds if I wanted to.  Hope that helps someone else.