Closing a solo 401k

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Topic Author
happypediatrician
Posts: 13
Joined: Thu Apr 08, 2021 11:01 pm
Location: Ventura, CA

Closing a solo 401k

Post by happypediatrician »

Hello,

I closed my solo 401k with VG on 7/20/22. Rolled it all over to IRA and ROTH IRA.

Value was below 250,000, thus never did a 5500 EZ.

I know I have to file a 5500 EZ now that I closed it. Just wanted to get clarification on when I would need to complete that by. One tax lawyer told me by 7/31/2023. A CPA told me 7 months from closure. I believe 7/31/2023 is correct, but just wanted to get another opinion.

Thank you so much.

https://www.irs.gov/instructions/i5500ez
Kids are not little adults
HomeStretch
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Joined: Thu Dec 27, 2018 3:06 pm

Re: Closing a solo 401k

Post by HomeStretch »

Why wait to file? You can file the final Form 5500-EZ via EFAST2 today. Penalties for late filing are steep.

The deadline for filing a final Form 5500-EZ is the end of the 7th calendar month following plan termination. The date of your plan termination is the date the plan assets were zero. If that date was 7/20/22, your filing deadline is 2/28/2023.
eukonomos
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Re: Closing a solo 401k

Post by eukonomos »

Are you up-to-date with required restatements?
toddthebod
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Joined: Wed May 18, 2022 12:42 pm

Re: Closing a solo 401k

Post by toddthebod »

happypediatrician wrote: Thu Aug 04, 2022 11:39 pm Hello,

I closed my solo 401k with VG on 7/20/22. Rolled it all over to IRA and ROTH IRA.

Value was below 250,000, thus never did a 5500 EZ.

I know I have to file a 5500 EZ now that I closed it. Just wanted to get clarification on when I would need to complete that by. One tax lawyer told me by 7/31/2023. A CPA told me 7 months from closure. I believe 7/31/2023 is correct, but just wanted to get another opinion.

Thank you so much.

https://www.irs.gov/instructions/i5500ez
It is seven months after you closed the plan, but there's no reason to officially close the plan until the end of the year. In fact, there's no reason to close the plan at all. And if you did close the plan, why don't you file the paperwork this afternoon? It takes ten minutes.
Topic Author
happypediatrician
Posts: 13
Joined: Thu Apr 08, 2021 11:01 pm
Location: Ventura, CA

Re: Closing a solo 401k

Post by happypediatrician »

Hello Homestretch. Thanks for getting back to me. I will get it filed this week, just wanted to make sure I was not already late. Do you typically use a CPA to help you file it?

Hello Eukonomos, I am not sure what "required restatements" are. I have documents from VG that I sign / up date every year. The account was opened for 2 years.

Thanks so much.
Kids are not little adults
Topic Author
happypediatrician
Posts: 13
Joined: Thu Apr 08, 2021 11:01 pm
Location: Ventura, CA

Re: Closing a solo 401k

Post by happypediatrician »

toddthebod wrote: Fri Aug 05, 2022 8:23 am
happypediatrician wrote: Thu Aug 04, 2022 11:39 pm Hello,

I closed my solo 401k with VG on 7/20/22. Rolled it all over to IRA and ROTH IRA.

Value was below 250,000, thus never did a 5500 EZ.

I know I have to file a 5500 EZ now that I closed it. Just wanted to get clarification on when I would need to complete that by. One tax lawyer told me by 7/31/2023. A CPA told me 7 months from closure. I believe 7/31/2023 is correct, but just wanted to get another opinion.

Thank you so much.

https://www.irs.gov/instructions/i5500ez
It is seven months after you closed the plan, but there's no reason to officially close the plan until the end of the year. In fact, there's no reason to close the plan at all. And if you did close the plan, why don't you file the paperwork this afternoon? It takes ten minutes.
Hello Todd,

I will file it promptly. I thought I had to close it once I stopped the 1099 job I was using to fund it. I went back to the W2 world. I wanted to simplify my accounts and consolidate to my IRA and ROTH IRA. However, my IRA that was at zero now is no longer zero, so then I suppose I won't be doing my 6k backdoor through it any more.

Really appreciate your help.
Kids are not little adults
HomeStretch
Posts: 8151
Joined: Thu Dec 27, 2018 3:06 pm

Re: Closing a solo 401k

Post by HomeStretch »

happypediatrician wrote: Fri Aug 05, 2022 8:25 am Hello Homestretch. Thanks for getting back to me. I will get it filed this week, just wanted to make sure I was not already late. Do you typically use a CPA to help you file it?
No, I use EFAST2 to file my Form 5500-EZs online.
It’s fairly straightforward, quick and you get immediate proof of filing (retain its and the Form 5500-EZ as part of your 401k files). Give it a try yourself. Search the forum for last threads on how to complete a final Form 5500-EZ.

Read the instructions to Form 5500-EZ. Set up an EFAST2 account. Have your 2022 Solo 401k statement on hand. Fill out a draft of the Form 5500-EZ. If you run into any issues, EFAST2 allows you to save a draft. You can post your questions here. The best way to get help is if you post the Form 5500-EZ line # with your response. For example (this is made up, I’m not looking at the form):

Line 10: $10,000
Line 15: Codes B,J
Etc.

Before filing:
(1) Per eukonomos’s post, your Vanguard Solo 401k plan should have been restated, if necessary, prior to terminating. The latest IRS restatement cycle ended 7/31/22. Check with Vanguard for further guidance if needed.
(2) You also need an EIN (obtained from the IRS online) to file a Form 5500-EZ.
(3) confirm that your plan assets at 7/31/22 were zero and that the July dividends were also rolled over to your IRA.

Edited typo (thanks eukonomos!)
Last edited by HomeStretch on Fri Aug 05, 2022 9:25 am, edited 1 time in total.
eukonomos
Posts: 167
Joined: Mon Jan 01, 2018 2:26 pm

Re: Closing a solo 401k

Post by eukonomos »

happypediatrician wrote: Fri Aug 05, 2022 8:25 am Hello Homestretch. Thanks for getting back to me. I will get it filed this week, just wanted to make sure I was not already late. Do you typically use a CPA to help you file it?

Hello Eukonomos, I am not sure what "required restatements" are. I have documents from VG that I sign / up date every year. The account was opened for 2 years.

Thanks so much.
Every six years, solo 401ks must be rewritten - that is restated. Before closing, the plan should be up to date. The deadline for the latest restatement cycle was 7/31/22.
I don't know if the documents you signed are the restatements. They do not have to be done every year. But if it was only open for 2 years, maybe one year was the initial and one was the restatement. You should look into whether you have restated.

And if so, what is the effective date of the restatement? If you signed VGs restatement documents this year, the effective date might be 1/1/23. That might be a reason to not close with a 5500 EZ until 2023. This is speculation on my part. (viewtopic.php?t=382584)

We did not need a CPA for the 5500 EZs. But the form does require some care and attention.

eg.,
viewtopic.php?t=301627

https://thefinancebuff.com/form-5500ez- ... -401k.html
eukonomos
Posts: 167
Joined: Mon Jan 01, 2018 2:26 pm

Re: Closing a solo 401k

Post by eukonomos »

toddthebod wrote: Fri Aug 05, 2022 8:23 am ...

It is seven months after you closed the plan, but there's no reason to officially close the plan until the end of the year. In fact, there's no reason to close the plan at all. And if you did close the plan, why don't you file the paperwork this afternoon? It takes ten minutes.
I think there is a reason to close it, and I would allow more than 10 minutes.
Topic Author
happypediatrician
Posts: 13
Joined: Thu Apr 08, 2021 11:01 pm
Location: Ventura, CA

Re: Closing a solo 401k

Post by happypediatrician »

Excellent, will get on it. Thanks!
Kids are not little adults
toddthebod
Posts: 233
Joined: Wed May 18, 2022 12:42 pm

Re: Closing a solo 401k

Post by toddthebod »

happypediatrician wrote: Fri Aug 05, 2022 8:29 am
toddthebod wrote: Fri Aug 05, 2022 8:23 am
happypediatrician wrote: Thu Aug 04, 2022 11:39 pm Hello,

I closed my solo 401k with VG on 7/20/22. Rolled it all over to IRA and ROTH IRA.

Value was below 250,000, thus never did a 5500 EZ.

I know I have to file a 5500 EZ now that I closed it. Just wanted to get clarification on when I would need to complete that by. One tax lawyer told me by 7/31/2023. A CPA told me 7 months from closure. I believe 7/31/2023 is correct, but just wanted to get another opinion.

Thank you so much.

https://www.irs.gov/instructions/i5500ez
It is seven months after you closed the plan, but there's no reason to officially close the plan until the end of the year. In fact, there's no reason to close the plan at all. And if you did close the plan, why don't you file the paperwork this afternoon? It takes ten minutes.
Hello Todd,

I will file it promptly. I thought I had to close it once I stopped the 1099 job I was using to fund it. I went back to the W2 world. I wanted to simplify my accounts and consolidate to my IRA and ROTH IRA. However, my IRA that was at zero now is no longer zero, so then I suppose I won't be doing my 6k backdoor through it any more.

Really appreciate your help.
No, you can keep your 401k open, your just can't make new contributions. 401ks have increased asset protection relative to IRAs and also allow you to do backdoor Roths without dealing with pro-rata stuff.
eukonomos
Posts: 167
Joined: Mon Jan 01, 2018 2:26 pm

Re: Closing a solo 401k

Post by eukonomos »

HomeStretch wrote: Fri Aug 05, 2022 8:49 am
happypediatrician wrote: Fri Aug 05, 2022 8:25 am Hello Homestretch. Thanks for getting back to me. I will get it filed this week, just wanted to make sure I was not already late. Do you typically use a CPA to help you file it?
No, I use EFAST2 to file my Form 5500-EZs online.
It’s fairly straightforward, quick and you get immediate proof of filing (retain its and the Form 5500-EZ as part of your 401k files). Give it a try yourself. Search the forum for last threads on how to complete a final Form 5500-EZ.

Read the instructions to Form 5500-EZ. Set up an EFAST2 account. Have your 2022 Solo 401k statement on hand. Fill out a draft of the Form 5500-EZ. If you run into any issues, EFAST2 allows you to save a draft. You can post your questions here. The best way to get help is if you post the Form 5500-EZ line # with your response. For example (this is made up, I’m not looking at the form):

Line 10: $10,000
Line 15: Codes B,J
Etc.

Before filing:
(1) Per eukonomos’s post, your Vanguard Solo 401k plan should have been restated, if necessary, prior to terminating. The latest IRS restatement cycle ended 7/31/22. Check with Vanguard for further guidance if needed.
(2) You also need an EIN (obtained from the IRS online) to file a Form 5509-EZ.
(3) confirm that your plan assets at 7/31/22 were zero and that the July dividends were also rolled over to your IRA.
Good info.
(typo in final reference to Form 5500-EZ)
eukonomos
Posts: 167
Joined: Mon Jan 01, 2018 2:26 pm

Re: Closing a solo 401k

Post by eukonomos »

toddthebod wrote: Fri Aug 05, 2022 9:04 am ...

No, you can keep your 401k open, your just can't make new contributions. 401ks have increased asset protection relative to IRAs and also allow you to do backdoor Roths without dealing with pro-rata stuff.
True. But OP already rolled over to IRA's. I don't know if Vanguard's plan would allow the assets to move back.

The penalty for failure to file a timely final Form 5500-EZ is severe, so I would take care of it. (viewtopic.php?p=4978058#p4978058)

If OP ever goes back to 1099 work, could open a new solo 401k (as Plan Number 002, look into those details).
panhead
Posts: 557
Joined: Fri Feb 22, 2013 10:53 am

Re: Closing a solo 401k

Post by panhead »

toddthebod wrote: Fri Aug 05, 2022 9:04 am No, you can keep your 401k open, your just can't make new contributions. 401ks have increased asset protection relative to IRAs and also allow you to do backdoor Roths without dealing with pro-rata stuff.
This statement is at least misleading and needs some clarification.

There are specific instances in which a solo 401k needs to be closed. Specifically, if the sponsoring entity is shut down. Say the sponsoring entity of the solo-k was an LLC. If the LLC is shut down, the solo-k also needs to be shut down.

Now, if this is a true sole-proprietor 401k plan with no employees, then there is a gray area where an argument can be made that one does not have to terminate the plan. The idea is that a sole-proprietor (person) is inseparable from the business and therefore cannot be shut down or cease to exist until death.

That being said, some believe that if a sole proprietor has no business income for a period of years, that the solo-k should be shut down.

I don't believe there is any precedence of the IRS challenging such a plan (true sole proprietor, no employees), so we don't really know what stance they would take.

Others (spirit rider for one) are much more versed on this topic than I, but the above information is paraphrased from what I learned from them. Do a search on terminating a solo 401k and one can find some good information. Here is one thread I have saved:

viewtopic.php?p=6128866#p6128866

"You pays your moneys and you's take yours chances"
HomeStretch
Posts: 8151
Joined: Thu Dec 27, 2018 3:06 pm

Re: Closing a solo 401k

Post by HomeStretch »

In case you are rethinking your plan termination based on some posts in this thread…

If you are <age 59-1/2 and have already transferred your 401k plan assets to an IRA, don’t try to roll the money back from the IRA into the 401k in order to keep it open/active. Stick with terminating the plan.

If a Solo 401k plan is terminated, you are eligible under the plan provisions and are, in fact, required by the IRS to transfer out the plan assets as soon as practicable and generally within one year. You already transferred the plan assets to an IRA due to plan termination. But if you are <age 59-1/2, you aren’t eligible under the plan provisions do an in-service plan distribution to an IRA. If you now try to claim the plan is active, then the IRA rollover you already did is problematic if you are <age 59-1/2.
Topic Author
happypediatrician
Posts: 13
Joined: Thu Apr 08, 2021 11:01 pm
Location: Ventura, CA

Re: Closing a solo 401k

Post by happypediatrician »

This was created as a sole proprietor with an EIN number. I am a physician and was doing significant 1099 contract work for 2 years. Now going back to W2

I will keep things simple and keep it closed. I will not try to roll it back.

If I do 1099 work again, will open a new plan, 002.

I have been reading spirit rider's posts and PMed him as well.

Thanks again everyone, really appreciate all the help.
Kids are not little adults
Laundry_Service
Posts: 314
Joined: Wed Sep 15, 2010 11:52 am

Re: Closing a solo 401k

Post by Laundry_Service »

If you have a 401k at your new job that is a good plan you can probably move your IRA into the new employer's plan.
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