Solo 401k after corporation closed?

[LH]

I'm switching to an employed job from PP (independent contractor). At my old corporation, I have a DB, solo 401k, and profit share plan set-up.  Most of these will be closed and rolled into other plans, or even the new 401k at my employed job.  However, is there anyway to keep the solo 401k open?  I'd be doing this mainly to give me better investing options.  Keep in mind, the corporation itself will no longer receive income. Would I still have to pay yearly fees for the corporation and also third-party admin fees for the solo 401k?  Or, is there a way to do this for free?  Or, should I just give up and roll everything into my new employed 401k.  Thanks in advance.

[jfoxcpacfp]

hmmm - I thought I replied to this yesterday, but it's not here. Maybe I forgot to hit the submit button.

To the best of my knowledge, the IRS does not specifically address this issue. I think you would be fine keeping the account open, but I believe it would be better to keep the corp open, also. Unfortunately, that means paying the annual fees which, if you live in CA, are $800 annually. You'll still have to file your 5500s but they should be much simpler now. I'm not a TPA, so I can't speak to what you should pay and the complexity, however. Of course, if your balance is < $250k, you don't have to file at all. Maybe roll enough over to get it under that amount?

Besides better choices, another reason to keep the solo-K in place is to have a receptacle to receive your rollover if you move on from your new job.

[The White Coat Investor]

I don't think the corporation has to stay open but I'm not 100% sure. I know a sole proprietorship can go years without income and keep that 401(k) going (just can't contribute to it.) In fact, I think it's a good idea for everyone to get a solo 401(k) at some point in their life.

[shantster]

The White Coat Investor wrote:

I don’t think the corporation has to stay open but I’m not 100% sure. I know a sole proprietorship can go years without income and keep that 401(k) going (just can’t contribute to it.) In fact, I think it’s a good idea for everyone to get a solo 401(k) at some point in their life.

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With the sole proprietorship, does the Solo 401K account need to be opened prior to the income stopping or anytime in the same calendar year? I'm making some additional income during residency as an independent contractor that is paid on a 1099. I will complete training next July 2017 and no longer plan to have this income stream when I take an attending position that will likely be an employed position. Will I need to open the Solo 401K by June 2017 so that it is open while I'm still making the income or can it be at any time during 2017 since that income will show up as self-employed income on my 2017 tax return? I have been using the extra income to aggressively pay off my loans and do not plan to add to a Solo 401K until later in 2017. I will also plan to roll the money from my 403(b) at my training institution to the Solo 401K next year after I leave training.

[LH]

As a follow up then, do I need to keep the third party administrator around? I currently have one because there is a profit share plan and defined benefit which will be closing. I'm basically trying to keep this solo 401k available but party no yearly fees. Otherwise, it's not worth it and I may as well roll into employer 401k.

[litovskyassetmanagement]

LH wrote:

As a follow up then, do I need to keep the third party administrator around? I currently have one because there is a profit share plan and defined benefit which will be closing. I’m basically trying to keep this solo 401k available but party no yearly fees. Otherwise, it’s not worth it and I may as well roll into employer 401k.

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Sounds to me like you might want to roll both plans into a solo 401k that allows incoming rollovers (or keep your current 401k custodian). Unless your employer plan has low cost index funds, I wouldn't roll any money into that plan.  If the asset level is $250k or higher, you will need to file a form 5500, so you might want to find a TPA who would file that for you without having to pay full admin cost (you shouldn't have to if the plan is not active).  Presumably you might want to continue doing backdoor Roth IRA, so you don't want to roll this into an IRA, but there is no reason not to keep this inside a solo 401k for yourself.  Who is the current custodian of your 401k plan?  Maybe you can use them so that you don't have to open a new account elsewhere (and you can't really open a new account unless you have 1099 income in the first place).  You might want to do cost-benefit analysis to see whether paying a TPA would be worthwhile vs. rolling the money into the employer's plan.

[LH]

Backdoor roth is precisely the reason I'd do this.  You hit the nail on the head.  My previous job was as a 1099, so I created the DB/profit share/401k to stash away money for retirement.  I am the admin for those accts.  I had a TPA set those up and administer them, and I paid them yearly.  That corporation is closing because I switched jobs.  It is not closed yet.  However, I am wondering if I can keep the solo 401k open in some form so I can invest in low cost index funds.  Also, if in the future I switch jobs again, I can keep rolling other accts into this to continue the same investment strategy.  Everything would roll into there, and while I haven't totaled the exact number up, it will approach 250k (likely exceed 250k by just a little).

Just wondering if there is a way to do this without continuing to pay a yearly fee for the TPA?  Am I even allowed to keep this solo 401k open even after the parent corporation has closed?  Thanks for everyone's input so far!

[litovskyassetmanagement]

LH wrote:

Backdoor roth is precisely the reason I’d do this.  You hit the nail on the head.  My previous job was as a 1099, so I created the DB/profit share/401k to stash away money for retirement.  I am the admin for those accts.  I had a TPA set those up and administer them, and I paid them yearly.  That corporation is closing because I switched jobs.  It is not closed yet.  However, I am wondering if I can keep the solo 401k open in some form so I can invest in low cost index funds.  Also, if in the future I switch jobs again, I can keep rolling other accts into this to continue the same investment strategy.  Everything would roll into there, and while I haven’t totaled the exact number up, it will approach 250k (likely exceed 250k by just a little).

Just wondering if there is a way to do this without continuing to pay a yearly fee for the TPA?  Am I even allowed to keep this solo 401k open even after the parent corporation has closed?  Thanks for everyone’s input so far!

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Yes, you can keep the solo 401k, but no avoiding paying TPA fees to administer the account.  You absolutely have to file form 5500.  You might be able to get a lower fee for simply filing form 5500 since that's all that the TPA would have to do.  Who is the custodian of your current solo 401k?

[spiritrider]

shantster wrote:

The White Coat Investor wrote:

I don’t think the corporation has to stay open but I’m not 100% sure. I know a sole proprietorship can go years without income and keep that 401(k) going (just can’t contribute to it.) In fact, I think it’s a good idea for everyone to get a solo 401(k) at some point in their life.

Click to expand…

With the sole proprietorship, does the Solo 401K account need to be opened prior to the income stopping or anytime in the same calendar year?

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As long as you open the solo 401k and make the elective deferral by 12/31/2017 and make the effective date prior to when you started receiving revenue you are OK. To be safe it would be best to make the effective date 01/01/2017.