Frequently Asked Questions

A Solo 401(k) plan, also known as an Individual 401(k) Plan or One-Participant 401(k) Plan, is a retirement savings plan designed specifically for self-employed individuals or small business owners with no full-time employees other than themselves and, potentially, their spouses or business partners. This type of plan is well-suited for sole proprietors, independent contractors, freelancers, or small business owners with no common-law employees.

Some of the key features of a Solo 401(k) plan include:

1. High contribution limits: With a Solo 401(k), you can contribute as both the employee and the employer, allowing for higher annual contribution limits compared to other retirement plans, such as SEP IRAs or SIMPLE IRAs. This enables you to save more for retirement while enjoying significant tax benefits.

2. Tax advantages: Contributions to a Solo 401(k) can be made on a pre-tax basis, reducing your taxable income and providing immediate tax savings. Alternatively, you can make Roth contributions, which allow for tax-free withdrawals during retirement.

3. Flexible investment options: Solo 401(k) plans offer a wide range of investment choices, including stocks, bonds, mutual funds, and more, allowing you to diversify your portfolio and tailor your investment strategy to meet your specific retirement goals.

4. Loan provisions: In certain circumstances, you can borrow from your Solo 401(k) plan, providing you with access to funds in case of an emergency or for other financial needs.

5. Easy administration: Solo 401(k) plans typically have less complex administrative requirements compared to traditional 401(k) plans, making them an attractive option for small business owners who want to minimize the time and effort spent on plan administration.

If you’re a self-employed individual or small business owner with no full-time employees, a Solo 401(k) plan may be a great option for you to maximize your retirement savings and enjoy valuable tax benefits.

A Solo 401(k) plan can be set up by self-employed individuals and small business owners who meet the following criteria:

1. Self-employed status: You must be self-employed, either as a sole proprietor, independent contractor, freelancer, or owner of a small business (such as an LLC, partnership, or corporation). This means you derive income from your business activities and report this income on your personal tax return or through a separate business tax return.

2. No full-time employees: To be eligible for a Solo 401(k), you cannot have any full-time employees other than yourself and, if applicable, your spouse or business partners. A full-time employee is generally defined as someone who works more than 1,000 hours per year for your business. Seasonal, temporary, or part-time workers who do not exceed this threshold does not automatically disqualify you from setting up a Solo 401(k) plan, but could have an impact on the availability of setting up and maintaining a plan. Also, employees that work greater than 500 hours in 2 consecutive years would be eligible for the deferral portion of the plan.

3. Business earnings: You need to have earned income from your self-employed business activities to contribute to a Solo 401(k). Earned income is generally defined as net earnings from self-employment after deducting business expenses and the deduction for one-half of the self-employment tax.

If you meet these criteria, you are eligible to set up a Solo 401(k) plan to maximize your retirement savings and take advantage of the tax benefits associated with this type of plan. Keep in mind that if your business grows and you hire full-time employees in the future, you may no longer be eligible for a Solo 401(k) and may need to transition to another type of retirement plan, such as a traditional 401(k) or a SEP IRA.

The 5500 Series forms are tax documents that employers use to report details of their 401(k) retirement plans to the IRS and Department of Labor. If you’re an employer with a 401(k) plan, it’s generally necessary for you to file these forms. They include data like overall balances, contributions, withdrawals, and investments related to the plan.

For Solo 401(k) Plans, the typical requirement is to file a Form 5500 EZ.

Remember, if you have multiple Solo 401(k) plans, the $250,000 threshold applies collectively to all of them. If the total exceeds this amount, a Form 5500 EZ filing is necessary. The usual deadline for this is the last day of the seventh month after the plan year ends. As an example, if your plan year concludes on December 31, you’ll have to submit the Form 5500 EZ by July 31 of the next year.

However, working with the Retire4one platform, there is no need to worry about the 5500 Form as these are prepared by our office and then reviewed, signed and filed by an independent fiduciary.

Roth and traditional after-tax contributions are both made using after-tax dollars, but they have different tax treatment, contribution rules, and withdrawal regulations. Here are the key differences between the two:

1. Tax treatment of earnings:

• Roth contributions: The earnings on Roth contributions grow tax-free, and qualified withdrawals in retirement are also tax-free, provided certain conditions are met (e.g., the account has been open for at least five years, and the account holder is at least 59.5 years old).
• Traditional after-tax contributions: The earnings on regular after-tax contributions are subject to taxes. While the principal amount (your original contributions) can be withdrawn tax-free, the earnings are taxed as ordinary income upon withdrawal.

2. Contribution rules:

• Roth contributions: Roth contributions are subject to annual salary deferral contribution limits as indexed for the cost of living increases. For 2024, the limit is $23,000 plus an additional $7,500 for those aged 50 or older. Additionally, there is no income limit under the Roth 401(k) unlike its Roth IRAs counterpart.
• Traditional after-tax contributions: These contributions are not subject to the same annual limits as Roth contributions. In a 401(k) plan, you can contribute traditional after-tax amounts up to the overall annual limit, which includes all contributions made by the employee and employer combined. For 2024, the overall contribution limit is $69,000.

3. Withdrawal regulations:

• Roth contributions: Roth accounts have specific rules for qualified tax-free withdrawals. Withdrawals are tax-free and penalty-free if the account holder is at least 59.5 years old and has held the account for at least five years.
• Traditional after-tax contributions: Withdrawal rules for regular after-tax contributions are typically more flexible than those for Roth accounts. While the principal amount (your original contributions) can generally be withdrawn tax-free, the earnings are taxed as ordinary income upon withdrawal. Withdrawals from the traditional after-tax account can be made anytime even if still actively employed and under age 59.5.

When choosing between Roth and traditional after-tax contributions, consider factors like your current and future tax rates, time horizon, and financial goals. Retire4one does not allow for traditional after-tax contributions to be made. It is not included in the plan documentation. You should consult with a financial advisor or tax professional to help you determine the most suitable option for your situation.

Regular 401(k) contributions, also known as pre-tax contributions, and Roth contributions are two types of contributions made to a 401(k) plan that differ in their tax treatment, both when the contributions are made and when the funds are withdrawn during retirement. Here’s an overview of the key differences between the two:

1. Tax treatment of contributions:

• Regular (Pre-Tax) 401(k) contributions: These contributions are made using pre-tax dollars, which means the contributed amount is deducted from your gross income before taxes are calculated. This reduces your taxable income for the current year and potentially lowers your overall tax liability. The premise of pre-tax contributions is to avoid paying taxes when you’re in higher tax brackets of your career and hopefully need less in retirement and thus be in a lower tax bracket.
• Roth 401(k) contributions: Roth contributions are made using after-tax dollars, meaning the contributions do not reduce your taxable income for the current year. You pay taxes on your income before making Roth contributions.

2. Tax treatment of earnings and withdrawals:

• Regular (Pre-Tax) 401(k) contributions: The earnings on pre-tax contributions grow tax-deferred, meaning you don’t pay taxes on the earnings while the funds remain in the account. However, when you withdraw the funds in retirement, both the contributions and earnings are taxed as ordinary income.
• Roth 401(k) contributions: The earnings on Roth contributions grow tax-free. Qualified withdrawals during retirement are also tax-free, provided certain conditions are met (e.g., the account has been open for at least five years, and you are at least 59.5 years old).

3. Required Minimum Distributions (RMDs):

• Regular (Pre-Tax) 401(k) contributions: Account holders must begin taking RMDs from their pre-tax 401(k) accounts starting at age 72. These mandatory withdrawals are subject to regular income tax. The RMD age was increased to 73 and beginning in 2024 increased again to age 74.
• Roth 401(k) contributions: Roth 401(k) accounts are also subject to RMDs, however beginning in 2024, the designated Roth accounts will no longer be subject to the RMD requirements.

When choosing between regular (pre-tax) and Roth 401(k) contributions, consider factors such as your current and future tax rates, time horizon, and financial goals. If you expect your tax rate to be higher in retirement, Roth contributions may be more advantageous. On the other hand, if you expect a lower tax rate in retirement, pre-tax contributions might be more suitable.

The actual concept shouldn’t be whether or not you should be contributing Pre-tax or Roth contributions. Planning for retirement really should use a combination of Pre-tax and Roth withdrawals to help keep the tax liability as low as possible. Retire4one is working on a program to help determine what the potential ideal balance would be between Pre-tax and Roth for each individual situation.

Choosing the right retirement plan depends on various factors, such as your employment status, income level, and financial goals. Each retirement plan has its unique features and benefits. Here are some reasons why you might consider setting up a Solo 401(K) plan over other options like SEP IRA, Regular IRA, SIMPLE IRA, or Roth IRA:

1. Higher contribution limits: Solo 401(K) plans typically have higher annual contribution limits compared to other plans, allowing you to save more for retirement. You can make both employee and employer contributions, potentially reaching a maximum combined limit that is higher than what’s allowed in SEP
IRAs, Traditional IRAs, SIMPLE IRAs, or Roth IRAs.

2. Flexibility in contributions: Solo 401(k) plans allow for both pre-tax (Traditional) and after-tax (Roth) contributions, offering greater flexibility and tax diversification for your retirement savings.

3. Loan provisions: Solo 401(K) plans may include loan provisions that allow you to borrow from your account under certain conditions. This feature is not available in SEP IRAs, Traditional IRAs, or Roth IRAs.

4. Catch-up contributions: Solo 401(K) plans allow individuals aged 50 or older to make additional catch-up contributions, increasing their annual contribution limit. This option is not available in SEP IRAs.

5. Creditor protection: Solo 401(K) plans may offer more robust creditor protection compared to IRAs, depending on your state’s laws,

6. No income limitations: Unlike Roth IRAs, which have income limitations for contributions, Solo 401(k) plans do not have income restrictions for making Roth contributions, making them more accessible to higher-income individuals.

However, it’s essential to evaluate your specific financial situation, goals, and needs before choosing a retirement plan. Each plan has its pros and cons, and the best option for you may depend on factors like your income, business structure, and future financial objectives. It’s advisable to consult with a tax professional to help you determine which retirement plan is most suitable for your needs.

Yes, indeed! Starting July 1, 2024, we will offer the option for you to include a financial advisor in managing your plan. After this date, for guidance on how to add a financial advisor to your account, please refer to the “How Do I” section on our platform.

Yes, you can roll over your old 401(k) from a prior employer into your Solo 401(k) plan. Rolling over your old 401(k) can be a convenient and easy way to consolidate your retirement savings and streamline the management of your retirement assets.

When rolling over your old 401(k) to a Solo 401(k), it’s essential to consider the tax implications and ensure the rollover is done correctly to avoid potential penalties:

1. Direct rollover: To avoid immediate tax consequences and the mandatory 20% withholding on the distributed amount, you should opt for a direct rollover (also known as a trustee-to-trustee transfer). In a direct rollover, the funds are transferred directly from your old 401(k) plan to your Solo 401(k) plan without you taking possession of the funds.

2. 60-day rollover: If you do take possession of the funds, you must deposit the entire distribution, including any amount withheld for taxes, into your Solo 401(k) plan within 60 days to avoid taxes and penalties. Failure to complete the rollover within the 60-day window may result in the distribution being treated as taxable income and, if you are under 59½ years old, a 10% early withdrawal penalty may apply.

3. Review plan rules and fees: Before rolling over your old 401(k), review the rules, investment options, and fees associated with both your old plan and your Solo 401(k) plan to ensure that the rollover aligns with your financial goals and investment strategy.

To initiate a rollover, you should contact the plan administrators of both your old 401(k) and your Solo 401(k) plan to obtain the necessary forms and instructions. Consulting with a financial advisor or tax professional can also help you navigate the rollover process and avoid potential pitfalls.

In general, you cannot roll over a Roth IRA directly into a Solo 401(k) plan. The IRS allows only certain types of rollovers between retirement accounts, and Roth IRAs are subject to specific rollover restrictions.

Rollovers are typically allowed between like accounts, such as:

1. Traditional IRA to Traditional IRA or Traditional 401(k)
2. Roth IRA to Roth IRA
3. Traditional 401(k) to Traditional 401(k) or Traditional IRA
4. Roth 401(k) to Roth 401(k) or Roth IRA
5. SEP to Traditional 401(k)
6. SIMPLE IRA to Traditional 401(k) (If participating for 2+ years in the SIMPLE)

However, rolling over a Roth IRA into a Solo 401(k) plan is not allowed. It’s important to remember that Solo 401(k) plans can have both Traditional (pre-tax) and Roth (after-tax) components, but these components are treated separately for rollover purposes.

If you have a Roth 401(k) from a previous employer, you may roll it over into the Roth component of your Solo 401(k) plan, but rolling over a Roth IRA into a Roth 401(k) is something that is just not permitted at this time.

Before initiating any rollover, it’s recommended to consult with a financial advisor or tax professional to ensure that you understand the specific rules and restrictions that apply to your situation. This will help you avoid any unintended tax consequences or penalties.

The contribution limits for a Solo 401(k) Plan are subject to change each year due to cost of living for inflation. For the 2024 tax year, the maximum contribution to a Solo 401(k) Plan consists of two parts: employee (salary deferral) contributions and employer (profit-sharing) contributions.

1. Employee (salary deferral) contributions: As an employee, you can contribute up to 100% of your earned income, with a maximum limit of $23,000 for individuals under 50 years old. If you are 50 years old or older, you can make an additional catch-up contribution of $7,500, bringing the total employee contribution limit to $30,500. This limit is the same for Employee Pre-Tax Deferrals as well as Employee Roth Contributions.

2. Employer (profit-sharing) contributions: As the employer, you can contribute up to 20% of your gross self-employment income (which is your earned income minus half of your self-employment taxes and the plan contributions made for yourself). The combined total of your employee and employer contributions cannot exceed $69,000 for individuals under 50 years old, or $76,500 for individuals aged 50 or older (including catch-up contributions) for the 2024 tax year.

It’s essential to verify the current contribution limits and consult with your tax professional to ensure you are making the appropriate contributions to your Solo 401(k) Plan.

Yes, you can stop contributing to your Solo 401(k) plan at any time. As a business owner with a Solo 401(k) plan, you have the flexibility to adjust your contributions based on your financial situation, cash flow, and business needs. If you decide to stop making contributions for a period, you can resume them later when your circumstances change or if you choose to do so.

However, keep in mind that stopping or reducing your contributions may have an impact on your retirement savings goals. It’s essential to consider the long-term effects of your contribution strategy and consult with a tax professional to ensure that you’re making the best decisions for your retirement planning needs.

Yes, you can make a one-time, lump-sum contribution to your Solo 401(k) Plan for the full year’s contribution, as long as you stay within the annual contribution limits set by the IRS or have enough in W2 wages (i.e. bonus, etc…).

When making a lump-sum contribution, it is extremely important to be certain that the business will have the appropriate income for the year to be able to contribute the amounts to the plan. You should consult your tax advisor if you have any questions on the amount that you are allowed to contribute to your plan.

For retirement plan purposes, your income is typically determined using a specific measure called “compensation.” Compensation generally includes your gross income from wages, salaries, bonuses, and other forms of earned income.

For retirement plan purposes, the compensation considered for contributions usually includes:

1. Wages and salaries: Your regular pay, including overtime, bonuses, and commissions.

2. Deferred compensation: Amounts contributed to pre-tax retirement plans, such as traditional 401(k) or 403(b) plans, or contributions made to flexible spending accounts (FSAs) or health savings accounts (HSAs).

For self-employed individuals and small business owners with retirement plans like Solo 401(k), SEP IRA, or SIMPLE IRA, the compensation considered is generally based on the net earnings from self-employment. This includes:

1. Net business income: The total revenue from your business minus deductible business expenses.

2. Self-employment tax deduction: Self-employed individuals are allowed to deduct ½ of their self-employment tax, which is also factored into the net earnings calculation.

To determine your income for retirement plan purposes, consider working with a tax professional or your CPA to help calculate your net earnings from self-employment accurately.

Voya offers exceptional tools for retirement planning. One such tool allows you to input details about all your assets, even those not held with Voya. The tool then calculates the savings you need to accumulate to achieve your retirement plan goals. It’s an extremely helpful tool for assessing your retirement savings strategy.

The 5500 Series forms are tax documents that employers use to report details of their 401(k) retirement plans to the IRS and Department of Labor. If you’re an employer with a 401(k) plan, it’s generally necessary for you to file these forms. They include data like overall balances, contributions, withdrawals, and investments
related to the plan.

For Solo 401(k) Plans, the typical requirement is to file a Form 5500 EZ.
Remember, if you have multiple Solo 401(k) plans, the $250,000 threshold applies collectively to all of them.

If the total exceeds this amount, a Form 5500 EZ filing is necessary. The usual deadline for this is the last day of the seventh month after the plan year ends. As an example, if your plan year concludes on December 31, you’ll have to submit the Form 5500 EZ by July 31 of the next year.

However, working with the Retire4one platform, there is no need to worry about the 5500 Form as these are prepared by our office and then reviewed, signed and filed by an independent fiduciary.

Whether or not you need to file a Form 5500 EZ for your Solo 401(k) plan depends on the total value of the plan’s assets. In general, if the total value of your Solo 401(k) plan’s assets is under $250,000 at the end of the plan year, you are not required to file a Form 5500 EZ with the Internal Revenue Service (IRS). However, once your plan’s assets exceed $250,000, you are required to file a Form 5500-EZ annually.

The Form 5500 series is used to report information about the plan’s financial condition, investments, and operations to the IRS and the Department of Labor (DOL). This requirement helps the government monitor compliance with the Employee Retirement Income Security Act (ERISA) and tax laws.

However, in utilizing the Retire4one platform, our office prepares and files the necessary Form 5500 filing requirements for your plan. Instead of Form 5500 EZ, we will be preparing A 5500 Form w/DCG Schedules as opposed to the Form 5500 EZ.

A Controlled Group of Corporations is a term used by the Internal Revenue Service (IRS) to describe a group of related corporations that are subject to specific tax and employee benefit plan rules. These rules apply to companies that have common ownership or control and are designed to prevent business owners from establishing multiple separate entities to avoid certain tax and employee benefit obligations.

There are three types of controlled groups of corporations:

1. Parent-subsidiary controlled group: This type of controlled group exists when one corporation (the parent) owns at least 80% of the total combined voting power or value of another corporation’s (the subsidiary) outstanding stock.

2. Brother-sister controlled group: This type of controlled group occurs when five or fewer individuals, estates, or trusts collectively own at least 80% of the voting power or value of the outstanding stock of two or more corporations, and the same individuals also have more than 50% identical ownership in each of those corporations, taking into account the ownership of each individual only to the extent that the ownership is identical with respect to each corporation.

3. Combined group: A combined group is a combination of the parent-subsidiary and brother-sister controlled groups, where at least one corporation is a member of both a parent-subsidiary and a brother-sister controlled group. Controlled groups of corporations must follow specific rules when it comes to tax treatment and employee benefit plans, such as:
a. Taxation: Members of a controlled group are subject to certain limitations on tax deductions and credits, including limitations on the use of net operating losses and tax credits that can be applied against tax liabilities.
b. Employee benefit plans: Controlled groups must consider all employees of the member corporations as employees of a single employer when determining eligibility for and compliance with employee benefit plan rules, including retirement plans (like 401(k) plans) and certain welfare benefit plans.

It is essential for business owners with multiple corporations to understand the concept of controlled groups and the associated rules, as non-compliance can lead to significant penalties and tax consequences. Consulting with a tax professional or attorney can help ensure that your business structure and employee benefit plans comply with the controlled group rules.

An Affiliated Service Group (ASG) is a term used by the Internal Revenue Service (IRS) to describe a group of related organizations that provide services to one another and share a strong connection in their operations. ASGs are subject to specific rules related to employee benefit plans to ensure that business owners don’t establish separate entities to avoid certain employee benefit obligations, such as retirement plan coverage and discrimination testing.

An ASG typically consists of:

1. A First Service Organization (FSO): This is typically the primary service organization in the group.

2. A Second Service Organization (SSO) or partner: This is an organization or partner that provides services to the FSO or to the clients of the FSO.

3. An organization that has a significant ownership interest in the FSO or that is owned by highly compensated employees (HCEs) of the FSO, provided the organization performs services for the FSO or its customers.

There are three main types of ASGs:

1. Traditional Affiliated Service Group: This type of ASG exists when an FSO and one or more SSOs or partners have a service relationship, and the SSO or partner is a shareholder or partner in the FSO.

2. Management Function Group: This occurs when an organization performs management functions for another organization that is not part of the same controlled group, and the organizations are not part of a traditional ASG.

3. Ancillary Service Group: This type of ASG exists when an organization is owned by HCEs of another organization and provides services to the other organization or its customers.

Organizations that are part of an Affiliated Service Group must follow specific rules regarding employee benefit plans. They must treat all employees within the ASG as employees of a single employer for determining eligibility and compliance with various employee benefit plan rules, including retirement plans (like 401(k) plans) and certain welfare benefit plans.

Business owners with multiple organizations should be aware of the concept of ASGs and the associated rules. Non-compliance can lead to penalties and tax consequences. Consulting with a tax professional, attorney, or benefits consultant can help ensure that your business structure and employee benefit plans comply with the Affiliated Service Group rules.

Yes. In order to make sure that you are still allowed to maintain a Solo(k) Plan. Should you hire any employees or any employees actually work enough hours to meet the eligibility requirements, it would push the plan out of Solo(k) status.

Once a year we will send out a request to verify whether any employees have been hired and whether there have been any ownership changes or additional companies have been started or purchased.

If you already have a user ID and Pin with the Department of Labor (DOL), it’s important to keep that information secure as you may need it in the future. However, if you’re setting up a new plan with Retire4one, there’s no need to set up such credentials. We will handle the filing of 5500 Forms on your behalf for assets under the Retire4one program. So, you can leave the administrative work to us.

When you operate a business as a sole proprietor, you are allowed to use your Social Security Number (SSN) for tax reporting purposes and you generally do not need a separate Employer Identification Number (EIN) for the business itself. However, if you establish a Solo 401(k) plan for your business, you will need to obtain an EIN specifically for the plan.

A Solo 401(k) plan is considered a separate legal entity from the business, and as such, it requires its own EIN for tax reporting and plan administration purposes. The EIN is used to identify the plan when filing annual reports with the Department of Labor (Form 5500 or 5500-SF) and for other plan-related matters.

To obtain an EIN for your Solo 401(k) plan, you can apply online through the IRS website. The online application process is quick and easy, and you will generally receive your EIN immediately upon completion. Alternatively, you can apply by mail or fax using Form SS-4, “Application for Employer Identification Number.”

It’s important to note that the EIN obtained for the Solo 401(k) plan should only be used for plan-related activities and not for other business purposes. Your business will continue to use your SSN for tax reporting and other business-related matters.

If you receive a notification from the IRS or Department of Labor (DOL), it’s essential to take it seriously and respond in a timely manner. Simply scan the notice and forward it to our office. We will prepare the appropriate response for you to send to them.

a. Retire4one, LLC – They take care of preparing the plan documents, an annual questionnaire, and the preparation of the IRS Form 5500 Tax Filing.

b. Voya – As the custodian of the account, offers investment options, holds the plan’s assets, and provides both a website for information and individual statements for employees.

c. BCG 401(k) Advisors – is a retirement plan consulting firm serving as your plan’s 3(38) investment fiduciary, which is the highest level of investment fiduciary services available under ERISA. Our mission is to provide you with the peace of mind that comes with having a dedicated, experienced, and credentialed team of professionals working on your behalf. We will provide your Investment Policy Statement (IPS) plus select and monitor the plan’s investments, including replacing investments should the need arise.They are signed on as a Fiduciary, responsible for selecting, monitoring and replacing the Core Group of Funds.

d. Fiduciary Wise, LLC – They serve as a 3(16) fiduciary for the plan, meaning they have a specific legal and ethical obligation towards the plan. They will also review, sign and file the 5500 Form They are also the 402 Fiduciary meaning they can also monitor for the Group of Plans.

Not at this time. We will let you know should this feature become available.

Voya as the custodian of and will hold all plan assets.

Voya is the institution responsible for safeguarding the plan assets. Their dedication to asset protection is unmatched. If you need more information on their security measures, don’t hesitate to contact Voya directly. 

Yes, you can roll over your old 401(k) from a prior employer into your Solo 401(K) plan. Rolling over your old 401(K) can be a convenient and easy way to consolidate your retirement savings and streamline the management of your retirement assets.

When rolling over your old 401(k) to a Solo 401(K), it’s essential to consider the tax implications and ensure the rollover is done correctly to avoid potential penalties:

1. Direct rollover: To avoid immediate tax consequences and the mandatory 20% withholding on the distributed amount, you should opt for a direct rollover (also known as a trustee-to-trustee transfer). In a direct rollover, the funds are transferred directly from your old 401(k) plan to your Solo 401(k) plan without you taking possession of the funds.

2. 60-day rollover: If you do take possession of the funds, you must deposit the entire distribution, including any amount withheld for taxes, into your Solo 401(k) plan within 60 days to avoid taxes and penalties. Failure to complete the rollover within the 60-day window may result in the distribution being treated as
taxable income and, if you are under 59% years old, a 10% early withdrawal penalty may apply.

3. Review plan rules and fees: Before rolling over your old 401(k), review the rules, investment options, and fees associated with both your old plan and your Solo 401(K) plan to ensure that the rollover aligns with your financial goals and investment strategy.

To initiate a rollover, you should contact the plan administrators of both your old 401(k) and your Solo 401(k) plan to obtain the necessary forms and instructions. Consulting with a financial advisor or tax professional can also help you navigate the rollover process and avoid potential pitfalls.

In general, you cannot roll over a Roth IRA directly into a Solo 401(k) plan. The IRS allows only certain types of rollovers between retirement accounts, and Roth IRAs are subject to specific rollover restrictions.

Rollovers are typically allowed between like accounts, such as:

1. Traditional IRA to Traditional IRA or Traditional 401(k)

2. Roth IRA to Roth IRA

3. Traditional 401(k) to Traditional 401(k) or Traditional IRA

4. Roth 401(k) to Roth 401(k) or Roth IRA

5. SEP to Traditional 401(k)

6. SIMPLE IRA to Traditional 401(k) (If participating for 2+ years in the SIMPLE)

However, rolling over a Roth IRA into a Solo 401(k) plan is not allowed. It’s important to remember that Solo 401(k) plans can have both Traditional (pre-tax) and Roth (after-tax) components, but these components are treated separately for rollover purposes.

If you have a Roth 401(k) from a previous employer, you may roll it over into the Roth component of your Solo 401(k) plan, but rolling over a Roth IRA into a Roth 401(k) is something that is just not permitted at this time.
.
Before initiating any rollover, it’s recommended to consult with a financial advisor or tax professional to ensure that you understand the specific rules and restrictions that apply to your situation. This will help you avoid any unintended tax consequences or penalties.

In general, you cannot roll over a Roth IRA directly into a Solo 401(k) plan. The IRS allows only certain types of rollovers between retirement accounts, and Roth IRAs are subject to specific rollover restrictions.

Rollovers are typically allowed between like accounts, such as:

1. Traditional IRA to Traditional IRA or Traditional 401(k)

2. Roth IRA to Roth IRA

3. Traditional 401(K) to Traditional 401(k) or Traditional IRA

4. Roth 401(K) to Roth 401(K) or Roth IRA

However, rolling over a Roth IRA into a Solo 401(K) plan is not allowed. It’s important to remember that Solo 401(K) plans can have both Traditional (pre-tax) and Roth (after-tax) components, but these components are treated separately for rollover purposes.

If you have a Roth 401(k) from a previous employer, you may roll it over into the Roth component of your Solo 401(K) plan, but rolling over a Roth IRA into a Roth 401(k) is something that is just not permitted at this time.

Before initiating any rollover, it’s recommended to consult with a financial advisor or tax professional to ensure
that you understand the specific rules and restrictions that apply to your situation. This will help you avoid any unintended tax consequences or penalties.

If you decide not to continue with your retirement plan, you need to officially terminate it. This action involves making changes to your plan via an amendment. Once the amendments are done, the next step is to process distributions or withdrawals. Lastly, you have to submit a final 5500 Form to signify that your plan has been closed out.

To initiate the termination process, please send an email to [email protected]. In the email, be sure to mention your company’s name and clearly state that you want to start the process to end your plan.

If you want to retain your plan but are not satisfied with the services provided by Retire4one and/or Voya, there’s a process for that. Please send an email to [email protected], mentioning your company’s name and clearly stating that you wish to discontinue Retire4one’s services. After receiving your email, we will prepare the necessary documents to facilitate your withdrawal from the program and to transfer your plan assets to your chosen new service provider.

The amount of time this process takes can vary greatly depending on the person. Likely, the most time-consuming part will be deciding which investments to use. We’ll provide you with tools to review the different fund options available in the plan. Besides considering these options, the rest of the process should be relatively quick, taking only a few minutes.

Once you’ve completed the electronic sign-up process, Retire4one will handle the rest. We’ll complete the necessary paperwork for your plan and set up your account with Voya. As soon as everything is ready and your account is open for contributions, we’ll notify you so you can start adding funds to your account.

No, we do not plan on increasing your fees. Actually, our approach is quite the opposite of what you might expect from a typical business. We will collaborate with Voya, Fiduciary Wise, and BCG Advisors with the goal of reducing the fees as the assets in the plan grow. 

While setting up a Solo(K) plan directly with providers could be costly, we’ve devised a solution to mitigate this. We’ve established a pooled plan that allows multiple companies to join a single plan at Voya, set up by Retire4one. This pooled approach benefits all participants within the Retire4one Defined Contribution Group by potentially reducing costs.

If your Solo 401(k) plan allows for Roth contributions and in-plan Roth conversions, you can convert your pre-tax
Solo 401(k) account to a Roth account at any time. The process is known as an in-plan Roth rollover or conversion. You will be limited to one conversion per year. Secure 2.0 now allows for employer contributions to be made in Roth, so the availability of conversions to Roth will no longer be needed.

Before deciding to convert your pre-tax Solo 401(k) account to a Roth account, it’s essential to carefully consider the potential benefits and drawbacks, including the tax implications and the impact on your retirement savings strategy. You should consult a tax professional to help you make an informed decision about whether an in-plan Roth conversion is right for you.

Yes, indeed! Starting July 1, 2024, we will offer the option for you to include a financial advisor in managing your plan. After this date, for guidance on how to add a financial advisor to your account, please refer to the “How Do I” section on our platform.

Not at this time. We will let you know should this feature become available.

Voya as the custodian of and will hold all plan assets.

Voya is the institution responsible for safeguarding the plan assets. Their dedication to asset protection is unmatched. If you need more information on their security measures, don’t hesitate to contact Voya directly.

The minimum amount required to invest in a Solo 401(k) Plan depends on the plan provider or custodian you choose to set up and manage your plan. Some providers may not have minimum investment requirements, while others may require a specific minimum initial investment or ongoing account balance.

At Retire4one, we have no minimum initial or ongoing investment. We also do not require any minimum balance, however, the premise of the Solo(k) Plan is to make sure that you are able to save enough for retirement.

If you dont know much about investing, dont worry! Many people start with little or no knowledge about investing. The key is to educate yourself and consider seeking professional guidance.

Using Retire4one’s system with Nationwide takes much of the scary parts of investing. Here are the items that we have put into place with using our system with Nationwide:

1. Core Group of Funds: We start by hiring a fiduciary to reduce the 1900 different mutual funds down to 30 to 3S quality mutual funds. This line up will be monitored on an ongoing basis by the fiduciary and they will determine if those mutual funds are still considered a quality mutual fund. This way, you don’t need to
keep monitoring the actual core fund line up for quality funds (note, quality funds may still have losses.

2. Choosing Investment Elections: As mentioned above, the fiduciary narrows down the investment options to the core group. From there, you can take Nationwide’s quiz to determine what type of investor you are. Completing the questionnaire will supply a sample breakdown of percentages for different mutual funds used for all future deposits made to your account.

3. Target Date Funds: Part of the core group of funds will consist of Target Date Funds. These are designed for participants to be able to choose the year closest to the year in which you are intending to retire. These funds are designed to get more conservative over time. Generally, when someone is choosing these funds. they put 100% into the fund they are using for retirement age.

4. Nationwide Pro Account: This is a paid service offered by Nationwide that you can sign up for. They will manage your account for you. They will trade your account as needed to hopefully help in avoiding the
large downturns in the market white still capturing the upward trends.

Remember, investing is a journey, and its essential to stay patient and disciplined. With time, education, and experience, you’ll become more confident in your investment decisions and better equipped to achieve your financial goals.

Yes,indeed! Starting July1,2024,we will offer the option for you to include a financial advisor in managing your plan. After this date, for guidance on how to add a financial advisor to your account, please refer to the “How Do l section on our platform.

A business owner or self-employed individual might set up a Cash Balance Plan for several reasons, including the following:

1. Higher contribution limits: Cash Balance Plans generally have higher annual contribution limits compared to defined contribution plans like 401(k)s or SEP IRAs. This allows for larger tax-deductible contributions and faster accumulation of retirement savings, particularly for those closer to retirement age.

2 Tax advantages: Contributions made to a Cash Balance Plan are tax-deductible for the employer, which can help reduce the overall tax liability for the business. In addition, the earnings in the plan grow tax-deferred, allowing for more significant long-term growth.

3. Predictable retirement benefits: Unlike defined contribution plans, Cash Balance Plans provide a guaranteed benefit at retirement based on a predetermined formula. This offers participants a more
predictable retirement income and added financial security.

4. Attract and retain employees: Offering a Cash Balance Plan as part of a competitive benefits package can help attract and retain talented employees. The plan may be especially appealing to high-income earners
or those in industries with specialized skills, as it provides a more substantial retirement benefit compared to other retirement plans.

5. Portability: Unlike traditional Defined Benefit Plans, Cash Balance Plans express the benefits as an account balance, making them more portable and easier to understand. When employees leave the
company, they can typically roll over their vested account balance to an IPA or another qualified retirement plan.

6. Reduced investment risk for employees: In a Cash Balance Plan, the employer bears the investment risk, not the employees. The employer is responsible for ensuring that the plan is adequately funded and that the promised benefits are met, regardless of market fluctuations.

Before setting up a Cash Balance Plan, its essential to consider factors such as the administrative costs, funding requirements, and your business’s long-term financial health.

There has been quite a buzz about something called a Mega Backdoor Roth. This is a strategy that allows certain individuals to contribute significantly more to a Roth account than the standard contribution limits would typically allow. This strategy takes advantage of traditional after-tax contributions in a 401(k) plan.

There are 2 types of after tax contributions allowed in a 401(k) Plan. The first is Roth after tax – this is where the contributions are made after tax and the gains grow tax free and distributions are made tax free as well. Regular after-tax allows the account to grow tax free, but the earnings are still taxable when withdrawn.

Whereas the Roth after-tax is limited to the salary deferral limit, the traditional after-tax contribution limit is the employer contribution limit of $69,000 for 2024. Then, since the plan allows for conversion of the entire account to Roth. This method essentially allows participants to contribute up to the full $69,000 limit as Roth.

Retire4one does not allow for the traditional after-tax contributions, so the traditional Mega Back Door Roth is not an option. However, with the passage of the new Secore 2.0, companies can now give the employer contributions directly as Roth. Thus, participants are allowed to contribute the $69,000 as Roth and no conversions are needed.

Yes, you may be able to take a loan from your Solo 401(k) account since Retire4one’s default plan’s provisions do allow for loans. The specific terms and conditions for taking a loan from a Solo 401(k) can vary by plan, but there are also general guidelines set by the Internal Revenue Service (IRS) that typically apply:

1. Loan amount: You can generally borrow up to 50% of your vested account balance or $50,000, whichever is less.

2. Loan repayment: You are required to repay the loan, with interest, according to a schedule that is substantially equal and includes at least quarterly payments. The maximum repayment period for a general purpose loan is typically five years. However, if the loan is used to purchase a primary residence, the repayment period may be longer.

3. Interest rate: The interest rate on the loan should be reasonable and comparable to the rates charged by commercial lenders for similar loans.

4. Loan documentation: You should have a written loan agreement in place that outlines the terms and conditions of the loan, including the loan amount, repayment schedule, interest rate, and any applicable fees.

Keep in mind that failure to repay the loan according to the terms and conditions can result in the loan being considered a taxable distribution. If you are under the age of 59½, this may also trigger a 10% early withdrawal penalty in addition to income taxes on the outstanding loan balance.

Before taking a loan from your Solo 401(k) account, it’s important to carefully consider the potential impact on your retirement savings and the tax implications if the loan is not repaid according to the terms. Consulting with a financial advisor or tax professional can help you better understand the potential consequences to make an informed decision.

For more information on taking a loan from your account, please see the How Do I section for a detailed description of the loan process.

When you move the plan’s assets to a new Solo 401(k) plan, you may be able to also move the loan depending on the rules and provisions of both the old and new plans. However, it’s important to note that the outstanding loan balance cannot be directly rolled over to the new plan.

Here’s what you need to consider:

1. Loan repayment: Generally, when you roll over a Solo 401(k) plan with an outstanding loan, you must continue making the loan repayments according to the original loan terms. Failure to make these payments can result in the outstanding loan balance being treated as a taxable distribution, which may be subject to income taxes and, if you are under 59½ years old, a 10% early withdrawal penalty.

2. New loan provisions: The new Solo 401(k) Plan may have different loan provisions than your current plan. You should review the new plan’s rules and determine whether you can continue making loan repayments as required by the original loan agreement.

3. Consult with plan administrators: Before initiating the rollover, you should consult with the plan administrators of both your current Solo 401(k) and the new Solo 401(k) to discuss the implications of rolling over the plan with an outstanding loan. They can provide guidance on the necessary steps and any potential consequences. You should reach out to your new Solo 401(k) provider first to make sure that the loan will be allowed and see if there are any questions that should be asked of your current provider.

4. Seek professional advice: Rolling over a Solo 401(k) plan with an outstanding loan can be a complex process, and it’s essential to understand the tax implications and potential penalties involved. Consulting with a financial advisor or tax professional can help you navigate the rollover process, evaluate your options, and make an informed decision.

Overall, while it may be possible to roll over your current Solo 401(k) plan to a new plan, you’ll need to address the outstanding loan balance separately to avoid potential tax consequences and penalties.

The contribution limits for a Solo 401(k) Plan are subject to change each year due to cost of living for inflation. For the 2024 tax year, the maximum contribution to a Solo 401(k) Plan consists of two parts: employee (salary deferral) contributions and employer (profit-sharing) contributions.

1. Employee (salary deferral) contributions: As an employee, you can contribute up to 100% of your earned income, with a maximum limit of $23,000 for individuals under 50 years old. If you are 50 years old or older, you can make an additional catch-up contribution of $7,500, bringing the total employee contribution limit to $30,500. This limit is the same for Employee Pre-Tax Deferrals as well as Employee Roth Contributions.

2. Employer (profit-sharing) contributions: As the employer, you can contribute up to 25% of your net self-employment income (which is your earned income minus half of your self-employment taxes and the plan contributions made for yourself). The combined total of your employee and employer contributions cannot exceed $69,000 for individuals under 50 years old, or $76,500 for individuals aged 50 or older (including catch-up contributions) for the 2024 tax year.

It’s essential to verify the current contribution limits and consult with your tax professional to ensure you are making the appropriate contributions to your Solo 401(k) Plan.

Please refer to the ‘How Do I’ section for specific instructions as to how to take out a loan from your account.

The amount you can take out as a loan from your Solo 401(k) plan depends on your vested account balance and is subject to specific limits set by the IRS.

Generally, the maximum loan amount is the lesser of:
1. 50% of your vested account balance, or
2. $50,000.

Generally, the maximum loan amount is 50% of your vested account balance, up to $50,000.

Keep in mind that taking out a loan from your Solo 401(k) may have implications on your retirement savings and overall financial plan. It’s essential to carefully consider your options and consult with a financial advisor or tax professional before proceeding with a loan from your Solo 401(k) Plan.

Taking a distribution from your Solo 401(k) Plan may involve several steps and considerations. Keep in mind that distributions, if allowed, are generally subject to income taxes, and if taken prior to age 59½, may also be subject to a 10% early withdrawal penalty. 

Here’s a general outline of distributions from your Solo 401(k) Plan:

1. Retirement plans are established with the intention that they are meant to be a savings vehicle for retirement. Thus, the IRS does not want withdrawals from retirement accounts until participants are actually retired. Thus, withdrawals are usually restricted from retirement accounts unless they meet certain criteria.  

2. Age 59½: Retirement plans may allow distributions to participants who are still actively employed and are over age 59½. To ensure that you meet the requirements for taking an in-service withdrawal. In most cases, you can take an in-service distribution from your Solo 401(k) Plan after reaching age 59½ or if they qualify for a Hardship distribution. 

3. Hardship Distributions: There are 6 safe harbor definitions of situations the IRS determines qualify for a Hardship distribution:

a. The purchase or downpayment of your principal place of residence.

b. To prevent eviction or foreclosure of your principal place of residence.

c. Medical expenses for the participant, their spouse or any of their dependents. Medical expenses generally waive the 

d. Post secondary education for the participant, their spouse or any of their dependents.

e. Funeral expenses for immediate family members.

f. Reimburse expenses if you live in an area that has been declared a natural disaster area.

The distribution types available under a Solo 401(k) Plan may vary depending on the specific plan provisions and the participant’s eligibility. However, some common distribution types generally include:

1. Normal retirement distributions: Once you reach age 59½, you become eligible to take penalty-free distributions from your Solo 401(k) plan. These distributions will be added to your income tax.

2. Required Minimum Distributions (RMDs): Starting at age 72 (or age 70½ if you turned 70½ before January 1, 2020), you must begin taking RMDs from your Solo 401(k) plan. These are mandatory distributions based on your life expectancy and account balance. RMDs are subject to income tax

3. Hardship distributions: Solo 401(k) plans generally allow for hardship distributions. Hardship distributions are subject to income tax, and if taken before age 59½, may also be subject to the 10% early withdrawal penalty.

4. Disability distributions: If you become permanently disabled, you may be eligible to take a distribution from your Solo 401(k) plan without being subject to the 10% early withdrawal penalty. However, the distribution will still be subject to income tax.

5. Distributions upon plan termination: If the Solo 401(k) plan is terminated, you will be required to take a distribution of your account balance. If the distribution is not rolled over, it will be subject to income tax and, if taken before age 59½, may also be subject to the 10% early withdrawal penalty.

6. Death distributions: If you pass away, your Solo 401(k) account balance will be distributed to your designated beneficiary or beneficiaries. The tax treatment of these distributions depends on the beneficiary’s relationship to you, whether the beneficiary is an individual or a non-individual (e.g., estate, charity), and the distribution options chosen by the beneficiary.

It is essential to consult with a tax professional to understand the distribution options available under your specific Solo 401(k) Plan and the potential tax consequences associated with each option.

The taxes on distribution types available under a Solo 401(k) Plan may vary depending on the type of distribution taken. However, some common distribution types generally include:

Options for Distributions: You may be able to choose between a lump-sum distribution or a rollover to either another 401(k) Plan or to an IRA. You should consult with a tax professional to determine the best option for your situation.

Tax withholding: Distributions from a Solo 401(k) Plan are generally subject to income taxes. If you decide to rollover your account balance to another 401(k) Plan or an IRA, you will avoid paying taxes on those amounts at this time. If you do not rollover your balance, there is a 20% mandatory federal withholding that must be withheld from all taxable accounts. You may need to elect withholding for state income taxes depending on the state you reside. Your tax advisor can provide you with additional information on the required withholding amounts and procedures.

Potential early withdrawal penalty: If you take a distribution before age 59½, you may be subject to a 10% early withdrawal penalty, unless an exception applies (e.g., disability, death, qualified first-time homebuyer expenses, or certain medical expenses). You should consult with a tax professional to understand any penalties that may apply to your distribution.

Report the distribution: When you receive a distribution from a retirement plan, you will receive a Form 1099-R from your plan administrator or custodian. You will need to report the distribution on your income tax return, and any applicable taxes and penalties will be calculated based on your overall tax situation.

Before taking a distribution from your Solo 401(k) plan, it’s essential to consider the potential tax consequences and the impact on your retirement savings. You should consult with a tax professional to help you evaluate your options and make an informed decision.

Yes, you can stop contributing to your Solo 401(k) plan at any time. As a business owner with a Solo 401(k) plan, you have the flexibility to adjust your contributions based on your financial situation, cash flow, and business needs. If you decide to stop making contributions for a period, you can resume them later when your circumstances change or if you choose to do so.

However, keep in mind that stopping or reducing your contributions may have an impact on your retirement savings goals. It’s essential to consider the long-term effects of your contribution strategy and consult with a tax professional to ensure that you’re making the best decisions for your retirement planning needs.

Yes, you can make a one-time, lump-sum contribution to your Solo 401(k) Plan for the full years contribution, as long as you stay within the annual contribution limits set by the IRSor have enough in W2 wages (i.e. bonus, etc…).

When making a lump-sum contribution, it is extremely important to be certain that the business will have the appropriate income for the year to be able to contribute the amounts to the plan. You should consult your tax advisor if you have any questions on the amount that you are allowed to contribute to your plan.

Yes, you can participate in both your employer’s 401(k) plan and a Solo 401(k) plan if you have self-employment income in addition to your regular employment. However, it’s important to note that the annual contribution limit for the Salary Deferral portion of both plans are aggregated and subject to the IRS limits.

However, the employer contributions are treated separately for each plan. In the case of your Solo 401(k) plan, you can make employer contributions (profit-sharing) up to 25% of your net self-employment income, subject to the combined annual limit for employee deferrals and employer contributions.

It’s crucial to carefully track your contributions across both plans to ensure that you stay within the IRS limits. You should consult with a financial advisor or tax professional to optimize your retirement savings strategy across both your employer’s 401(k) plan and your Solo 401(k) plan.

No. The traditional after-tax was primarily used as part of the Mega Back Door Roth strategy. Since Secure 2.0 was passed, it allows employer contributions to be made as Roth contributions thus eliminating the need for the traditional after-tax contributions.

Roth and traditional after-tax contributions are both made using after-tax dollars, but they have different tax treatment, contribution rules, and withdrawal regulations. Here are the key differences between the two:

1. Tax treatment of earnings:

• Roth contributions:The earnings on Roth contributions grow tax-free, and qualified withdrawals in retirement are also tax-free, provided certain conditions are met (e.g., the account has been open for at
least five years, and the account holder is at least 59.5 years old).

2 Traditional after-tax contributions: The earnings on regular after-tax contributions are subject to taxes. While the principal amount your original contributions) can be withdrawn tax-free, the earnings are taxed as ordinary income upon withdrawal.

3. Contribution rules:

• Roth contributions: Roth contributions are subject to annual salary deferral contribution limits as indexed for the cost of living increases. For 2024, the limit is $23,000 plus an additional $7,500 for those aged 50 or older. Additionally, there is no income limit under the Roth 401(k) unlike its Roth IRAs counterpart.

• Traditional after-tax contributions: These contributions are not subject to the same annual limits as Roth contributions. In a 401(k) plan, you can contribute traditional after-tax amounts up to the overall annual
limit, which includes all contributions made by the employee and employer combined. For 2024, the overall contribution limit is $69,000.

4. Withdrawal regulations:

• Roth contributions Roth accounts have specific rules for qualified tax-free withdrawals. Withdrawals are tax-free and penalty-free if the account holder is at least 59.5 years old and has held the account for at least five years.

• Traditional after-tax contributions: Withdrawal rules for regular after-tax contributions are typically more flexible than those for Roth accounts. While the principal amount (your original contributions) can generally be withdrawn tax-free, the earnings are taxed as ordinary income upon withdrawal. Withdrawals from the traditional after-tax account can be made anytime even if still actively employed and under age 59.5.

When choosing between Roth and traditional after-tax contributions, consider factors like your current and future tax rates, time horizon, and financial goals. Retire4one does not allow for traditional after-tax contributions to be made. It is not included in the plan documentation. You should consult with a financial advisor or tax professional to help you determine the most suitable option for your situation.

Yes, the Retire4one platform does support the Roth 401(k) feature. This allows you to contribute post-tax income towards your retirement savings. In addition, once every year, you have the option to convert any pre-tax amounts in your account to a Roth format, which will then grow tax-free.

If you pass away, the assets in your Solo 401(k) plan will be distributed to your designated beneficiaries, according to the terms of the plan and any applicable laws. It is crucial to have a named beneficiary or multiple beneficiaries for your Solo 401(k) plan to ensure a smooth transfer of assets upon your death. Here’s what generally happens when a Solo 401(k) plan owner passes away:

1. Beneficiary designation: When you set up your Solo 401(k) plan, you should name one or more beneficiaries who will inherit the assets in the event of your death. You can designate primary beneficiaries and contingent beneficiaries. Primary beneficiaries are the first in line to inherit the assets, while contingent beneficiaries will inherit the assets if the primary beneficiaries predecease you or are unable to inherit the assets for any reason.

2. Distribution options for beneficiaries: Upon your death, your beneficiaries will have several options for receiving the inherited Solo 401(k) assets, depending on their relationship to you, the plan rules, and the tax treatment of the account (traditional or Roth). Some common distribution options include:
a. Lump-sum distribution: Beneficiaries can choose to receive the entire account balance in a single payment. This option may have significant tax implications, particularly for non-spouse beneficiaries.
b. Transfer or rollover: Spousal beneficiaries can transfer or roll over the inherited assets into their own retirement account, such as an IRA or a 401(k), while non-spouse beneficiaries can transfer the assets into an Inherited IRA. This allows the assets to maintain their tax-deferred status and, in some cases, stretch the distributions over a longer period.
c. Required Minimum Distributions (RMDs): Depending on the type of beneficiary and the account’s tax treatment, the beneficiary may be required to start taking RMDs from the inherited account. The rules for RMDs from an inherited retirement account can be complex and depend on factors such as the beneficiary’s age, relationship to the deceased, and the deceased’s age at the time of death.

3. Estate taxes and income taxes: Depending on the size of your estate and the value of your Solo 401(k) plan, the assets may be subject to federal and state estate taxes. Additionally, any distributions from the inherited account may be subject to income taxes, depending on the tax treatment of the account and the distribution method chosen by the beneficiary.

It’s essential to consult with an estate planning attorney, financial advisor, or tax professional to ensure your Solo 401(k) plan is set up properly to minimize tax implications and provide for the smooth transfer of assets to your designated beneficiaries in the event of your death.

There are several types of retirement plans available for business owners and self-employed individuals in addition to the Solo 401(k) Plan. Some of the most common retirement plans include:

1. Traditional IRA: A Traditional Individual Retirement Account (IRA) is available to anyone with earned income, allowing for tax-deductible contributions and tax-deferred growth. Withdrawals in retirement are taxed as ordinary income.

2. Roth IRA: A Roth IRA is similar to a Traditional IRA, but contributions are made with after-tax dollars. The growth and withdrawals in retirement are tax-free, provided certain conditions are met. Eligibility for a Roth IRA is subject to income limits.

3. SEP IRA: A Simplified Employee Pension (SEP) IRA is designed for self-employed individuals and small business owners. It allows for tax-deductible employer contributions and tax-deferred growth, with the flexibility to adjust contributions each year based on business performance.

4. SIMPLE IRA: A Savings Incentive Match Plan for Employees (SIMPLE) IRA is designed for small businesses with 100 or fewer employees. It offers a simpler and lower-cost alternative to traditional 401(k) plans, with both employer and employee contributions allowed.

5. Traditional 401(k): A Traditional 401(k) plan is a common retirement savings plan offered by employers, which allows employees to make pre-tax contributions and enjoy tax-deferred growth. Employers may also make matching or profit-sharing contributions.

6. Roth 401(k): A Roth 401(k) is a feature within some 401(k) plans that allows employees to make after-tax contributions. The growth and withdrawals in retirement are tax-free, provided certain conditions are met.

7. Defined Benefit Pension Plan: A Defined Benefit Pension Plan, also known as a traditional pension plan, promises a specified monthly benefit at retirement based on a formula that typically considers the employee’s years of service and salary. These plans are less common today due to their complexity and higher costs compared to defined contribution plans like 401(k)s and IRAs. Cash Balance Plans also fall under this category.

8. Profit-Sharing Plan: A Profit-Sharing Plan is a type of defined contribution plan where employers contribute a portion of their profits to employee retirement accounts. The contributions are usually discretionary and may vary from year to year based on the company’s financial performance.

9. Employee Stock Ownership Plan (ESOP): An ESOP is a type of retirement plan where employees receive company stock, allowing them to become partial owners of the business. ESOPs can be a way for employees to benefit from the growth of the company and share in its success. Contributions made to employees accounts under an ESOP are all employer contributions.

When considering which retirement plan is best for your situation, it’s essential to evaluate factors such as your business structure, the number of employees, administrative costs, and your retirement savings goals.

A Defined Benefit Plan and a Cash Balance Plan are both types of employer-sponsored retirement plans that promise a specified benefit at retirement, but they differ in the way benefits are calculated and credited to participants.

1. Defined Benefit Plan: A Defined Benefit Plan, also known as a traditional pension plan, provides a predetermined monthly benefit at retirement based on a formula that typically takes into account factors such as years of service, salary, and a benefit accrual rate. The employer is responsible for funding the plan, managing the investments, and bearing the investment risk. The benefits are usually paid as an annuity, which provides a guaranteed income stream for the retiree’s lifetime. These plans have become less common due to their complexity and higher costs compared to defined contribution plans like 401(k)s and IRAs.

2. Cash Balance Plan: A Cash Balance Plan is a type of hybrid plan that combines features of both defined benefit and defined contribution plans. Each participant has an individual account that is credited with a “pay credit” (a percentage of their salary) and an “interest credit” (based on a predetermined interest rate). The employer is responsible for funding the plan, managing the investments, and bearing the investment risk. At retirement, participants can choose to receive the accumulated account balance as a lump sum or convert it to an annuity that provides a guaranteed income stream for their lifetime.

Cash Balance Plans are generally easier to understand and more portable than traditional Defined Benefit Plans, as the benefits are expressed as an account balance rather than a complex formula. These plans have gained popularity among small business owners and self-employed individuals as they allow for higher contribution limits and potential tax advantages compared to defined contribution plans.

When considering a Defined Benefit Plan or a Cash Balance Plan, it’s essential to evaluate factors such as your business structure, the number of employees, administrative costs, and your retirement savings goals. Consulting with a financial advisor or actuary/TPA can help you determine the most appropriate plan for your needs and ensure compliance with the relevant rules and regulations.

A business owner or self-employed individual might set up a Cash Balance Plan for several reasons, including the following:

1. Higher contribution limits: Cash Balance Plans generally have higher annual contribution limits compared to defined contribution plans like 401(k)s or SEP IRAs. This allows for larger tax-deductible contributions and faster accumulation of retirement savings, particularly for those closer to retirement age.

2. Tax advantages: Contributions made to a Cash Balance Plan are tax-deductible for the employer, which can help reduce the overall tax liability for the business. In addition, the earnings in the plan grow tax-deferred, allowing for more significant long-term growth.

3. Predictable retirement benefits: Unlike defined contribution plans, Cash Balance Plans provide a guaranteed benefit at retirement based on a predetermined formula. This offers participants a more predictable retirement income and added financial security.

4. Attract and retain employees: Offering a Cash Balance Plan as part of a competitive benefits package can help attract and retain talented employees. The plan may be especially appealing to high-income earners or those in industries with specialized skills, as it provides a more substantial retirement benefit compared to other retirement plans.

5. Portability: Unlike traditional Defined Benefit Plans, Cash Balance Plans express the benefits as an account balance, making them more portable and easier to understand. When employees leave the company, they can typically roll over their vested account balance to an IRA or another qualified retirement plan.

6. Reduced investment risk for employees: In a Cash Balance Plan, the employer bears the investment risk, not the employees. The employer is responsible for ensuring that the plan is adequately funded and that the promised benefits are met, regardless of market fluctuations.

Before setting up a Cash Balance Plan, it’s essential to consider factors such as the administrative costs, funding requirements, and your business’s long-term financial health.

Though it’s possible to include life insurance policies in retirement plans, unfortunately, they are not compatible with the Retire4one model. We apologize if this causes any inconvenience. Please note that this is specific to our model and does not reflect a universal approach to retirement planning.

Using the proceeds in your retirement account to fund your business is generally not recommended, as retirement accounts are intended for long-term savings and taking money out early can have significant tax and financial consequences.

However, there are a few options you may consider if you’re determined to use your retirement funds for your business:
401(k) Loan: Since your retirement plan allows for loans, you are able to take a loan from your 401(k) account to fund your business. Keep in mind that loans have strict repayment terms and must be repaid with interest. Failing to repay the loan on time could result in taxes and penalties, as well as jeopardize your retirement savings.

Early Withdrawal: You may withdraw funds from your other retirement accounts (other 401(k) or IRA accounts) prior to reaching the age of 59.5. However, this is generally not advisable, as early withdrawals typically result in a 10% penalty, in addition to being taxed as ordinary income. This option should be considered a last resort, as it can significantly impact your long-term retirement savings.

Rollover for Business Start-ups (ROBS): A ROBS transaction allows you to use your retirement funds to invest in or start a new business without incurring taxes or penalties. This strategy involves rolling over funds from your retirement account into a new C corporation, which then sponsors a qualified retirement plan. The new retirement plan purchases stock in the C corporation, effectively using your retirement funds to finance the business. ROBS transactions are complex and must be structured carefully to comply with IRS and Department of Labor rules. Engaging an experienced professional or firm is highly recommended if you’re considering this option.

Retire4one does not support ROBS transactions under our platform.

Each of these options carries potential risks and consequences, and using retirement funds for business purposes may not be suitable for everyone. It’s crucial to consult with a financial advisor, tax professional, or retirement plan expert before using your retirement account to fund your business. They can help you assess the potential risks, tax implications, and long-term impact on your retirement savings.

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