How to handle individual 401k administration

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Topic Author
Luckywon
Posts: 547
Joined: Tue Mar 28, 2017 10:33 am

How to handle individual 401k administration

Post by Luckywon » Sat Nov 03, 2018 11:50 am

I have an individual 401k (Schwab custodian) and use a 3rd party administrator who charges me $650 a year. As far as I can tell the only substantive thing they do is file Form 5500-SF annually. I'm not taking distributions at this time so that form looks to be extremely simple to complete.

I'm thinking of changing this setup, either by doing the administration myself, shopping for a better 3rd party administrator rate, or using a company like discountsolo401k.com to convert to a self directed solo 401which would seem to be much cheaper in the long run and also allow more flexibility in terms of plan options

So my question for others who have individual 401k's are: how do you handle the administration? If you use a 3rd party administrator how much do they charge? Am I missing something or is there more to this than just filing the Form 5500-SF?

Many thanks for any replies.

DavidRoseMountain
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Joined: Sun Nov 30, 2014 3:27 pm

Re: How to handle individual 401k administration

Post by DavidRoseMountain » Sat Nov 03, 2018 12:20 pm

Discountsolo401k has a salary deferral election form that you fill out by the end of the year for the following year. In this form you determine how much you will be saving for deferral.

If you will be doing the megabackdoor roth then there is also an In-Plan Roth Conversion Form that you fill out.

I keep a record of all contributions to Pre-tax, After-tax, and in Plan Roth on a spreadsheet. Pre-tax consists of salary deferrals and employer contributions.

Don't accidentally overcontribute to the Employer contribution, before you know the correct amount you're supposed to contribute. SpiritRider has written a lot about the danger of this.

patrick
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Joined: Fri Sep 04, 2009 3:39 am
Location: Mega-City One

Re: How to handle individual 401k administration

Post by patrick » Sat Nov 03, 2018 3:57 pm

I used to have an individual 401K with Vanguard -- there was no third party administrator and I did not miss having one.

Lafder
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Location: East of the Rio Grande

Re: How to handle individual 401k administration

Post by Lafder » Sat Nov 03, 2018 4:00 pm

I use Fidelity. There is no fee. I do have to file the 5500 myself which takes less than 10 minutes including mailing it.

Fidelity allows you to roll in other retirement accounts, Vanguard does not. And Fidelity has very low cost options for their solo 401k funds.

You can likely read about it on their website.

lafder

Topic Author
Luckywon
Posts: 547
Joined: Tue Mar 28, 2017 10:33 am

Re: How to handle individual 401k administration

Post by Luckywon » Sat Nov 03, 2018 5:43 pm

patrick wrote:
Sat Nov 03, 2018 3:57 pm
I used to have an individual 401K with Vanguard -- there was no third party administrator and I did not miss having one.
May I ask, did you file Form 5500-SF yourself? Was there any other administration that you had to take care of? How about when you terminated the plan-how did you handle that?
DavidRoseMountain wrote:
Sat Nov 03, 2018 12:20 pm
Discountsolo401k has a salary deferral election form that you fill out by the end of the year for the following year. In this form you determine how much you will be saving for deferral.

If you will be doing the megabackdoor roth then there is also an In-Plan Roth Conversion Form that you fill out.

I keep a record of all contributions to Pre-tax, After-tax, and in Plan Roth on a spreadsheet. Pre-tax consists of salary deferrals and employer contributions.

Don't accidentally overcontribute to the Employer contribution, before you know the correct amount you're supposed to contribute. SpiritRider has written a lot about the danger of this.
Thanks for the reply, I guess these the types of things I will have to take care of and keep an eye on if I decide not to have a 3rd party administrator.
Lafder wrote:
Sat Nov 03, 2018 4:00 pm
I use Fidelity. There is no fee. I do have to file the 5500 myself which takes less than 10 minutes including mailing it.

Fidelity allows you to roll in other retirement accounts, Vanguard does not. And Fidelity has very low cost options for their solo 401k funds.

You can likely read about it on their website.

lafder


Thanks, I may actually be transferring the 401k to Etrade whose boilerplate plan is fairly liberal with respect to what it allows.

Lafder
Posts: 3999
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: How to handle individual 401k administration

Post by Lafder » Sat Nov 03, 2018 9:48 pm

The 5500 form is very easy to fill out.

If you can set up a solo401k, you can do the form!

lafder

jogren
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Joined: Mon Jan 10, 2011 10:12 pm

Re: How to handle individual 401k administration

Post by jogren » Sun Nov 04, 2018 8:17 am

Unfortunately I don’t have $250K in my solo 401k yet but fortunately I don’t have to file Form 5500.

J

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: How to handle individual 401k administration

Post by Spirit Rider » Sun Nov 04, 2018 8:49 am

Luckywon wrote:
Sat Nov 03, 2018 11:50 am
As far as I can tell the only substantive thing they do is file Form 5500-SF annually. I'm not taking distributions at this time so that form looks to be extremely simple to complete.
Are you sure they are filing a Form 5500-SF. It was/is not necessary.

One-participant 401k plan can file a much simpler Form 5500-EZ. Even then it is not required unless the plan balance is > $250K on 12/31.

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BolderBoy
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Re: How to handle individual 401k administration

Post by BolderBoy » Sun Nov 04, 2018 11:34 am

Luckywon wrote:
Sat Nov 03, 2018 11:50 am
So my question for others who have individual 401k's are: how do you handle the administration? If you use a 3rd party administrator how much do they charge? Am I missing something or is there more to this than just filing the Form 5500-SF?
The "administration" of a solo401k is pretty simple. Besides, you have us to help you with it.

Also, a one-participant, solo 401k can use Form 5500-EZ. Very easy and again, we can help you with it. Took me about 10 minutes to fill out and file back in April.

Presto - you'll save $650/yr.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

patrick
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Re: How to handle individual 401k administration

Post by patrick » Sun Nov 04, 2018 12:18 pm

Luckywon wrote:
Sat Nov 03, 2018 5:43 pm
patrick wrote:
Sat Nov 03, 2018 3:57 pm
I used to have an individual 401K with Vanguard -- there was no third party administrator and I did not miss having one.
May I ask, did you file Form 5500-SF yourself? Was there any other administration that you had to take care of? How about when you terminated the plan-how did you handle that?
I did file the 5500-SF myself. The plan was under $250,000 so I only had to file it once, upon terminating the plan. To terminate the plan I just contacted Vanguard and had them roll it over to a Vanguard IRA. Beyond that, I didn't really have to do any administration beyond what I did for an IRA account, except that the forms I had to fill in for opening the account were somewhat longer for the individual 401k.

lgerla
Posts: 28
Joined: Tue Jan 31, 2017 10:07 pm

Re: How to handle individual 401k administration

Post by lgerla » Sun Nov 04, 2018 1:27 pm

The TPA administration of a solo 401k probably also includes plan document compliance. You still need that.

I pay Ascensus Employer Direct $205 per year. They've sent three different compliance updates to the plan since I started the 401(k) in 2016. The annual fee includes one plan change per year requested by me, if needed. This year, they updated my plan documents with a new address.

I file the 5500-EZ and 1099-Rs for Mega Backdoor Roth following the examples shown by Harry Sit. :beer

Lafder
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Re: How to handle individual 401k administration

Post by Lafder » Sun Nov 04, 2018 3:43 pm

What plan document compliance is needed?

I filled out the forms to open the account, and save any paperwork in a file.

Other than the 5500 form, what other compliance forms are needed?

Fidelity keeps track of the contributions and whether they are employer/employee, and the year of contribution.

lafder

Spirit Rider
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Re: How to handle individual 401k administration

Post by Spirit Rider » Sun Nov 04, 2018 6:24 pm

Lafder wrote:
Sun Nov 04, 2018 3:43 pm
What plan document compliance is needed?

I filled out the forms to open the account, and save any paperwork in a file.

Other than the 5500 form, what other compliance forms are needed?

Fidelity keeps track of the contributions and whether they are employer/employee, and the year of contribution.
A 401k plan document must remain in compliance with all Internal Revenue Code (IRC) and Code of Federal Regulations (CFR) changes. When you have a master & prototype 401k plan through a mainstream one-participant 401k provider, e.g. ETrade Fidelity, Schwab, TD Ameritrade, Vanguard, etc... That provider maintains the plan document, makes amendments and restates the plan as necessary with you certifying it.

When you have a custom one-participant 401k plan document, the document provider must take that responsibility. If you do not pay them for document compliance and your plan subsequently is not compliant, it can result in your plan's disqualification. This can then result in the forced distribution all plan assets with them subject to ordinary income taxes and early withdrawal penalties. I know of no plan document provider that doesn't charge a yearly fee for document compliance.

The information on Fidelity's Self-Employed 401(k) Contribution Remittance Form is purely to assist you in tracking the employee elective and annual addition limits for that plan. However, Fidelity is only the custodian and trustee. You or whoever you entered on the Adoption Agreement is the plan administrator. In such a M&P plan, you are ultimately responsible for all contribution limits and plan compliance. A one-participant 401k is still 99.9% like any other 401k, not just a bigger IRA (credit tfb). You don't know just how much you don't know.

Topic Author
Luckywon
Posts: 547
Joined: Tue Mar 28, 2017 10:33 am

Re: How to handle individual 401k administration

Post by Luckywon » Sun Nov 04, 2018 7:25 pm

Lafder wrote:
Sat Nov 03, 2018 9:48 pm
The 5500 form is very easy to fill out.

If you can set up a solo401k, you can do the form!
Spirit Rider wrote:
Sun Nov 04, 2018 8:49 am
Are you sure they are filing a Form 5500-SF. It was/is not necessary.

One-participant 401k plan can file a much simpler Form 5500-EZ. Even then it is not required unless the plan balance is > $250K on 12/31.
BolderBoy wrote:
Sun Nov 04, 2018 11:34 am
The "administration" of a solo401k is pretty simple. Besides, you have us to help you with it.

Also, a one-participant, solo 401k can use Form 5500-EZ. Very easy and again, we can help you with it. Took me about 10 minutes to fill out and file back in April.

Presto - you'll save $650/yr.
Thanks very much Lafder, Spirit Rider and BolderBoy. I agree the Form 5500 looks like a snap, and with the help of this forum and two previous year's forms as templates I can do it!! :beer

Spirit Rider, It was indeed the Form 5500-SF the TPA filed in 2017 (they did file the EZ form in 2016). I suspect they may have filed the Form 5500-SF because that form is filed electronically. The EZ form is a paper form. There seems almost no down side to using the SF in my case since if a one participant plan uses the Form 5500-SF, several of the items do not have to be filled out and it becomes much more like the EZ form. This I gleaned from the 2017 Instructions for Form 5500-SF page 7 "Specific Instructions Only for "One-Participant Plans and Certain Foreign Plans". As the penalties for not filing timely can be severe, I think I would use Form 5500-SF because I feel more secure the electronic filing was received. The process of registering to be able to file electronically does not look difficult to me.
patrick wrote:
Sun Nov 04, 2018 12:18 pm
I did file the 5500-SF myself. The plan was under $250,000 so I only had to file it once, upon terminating the plan. To terminate the plan I just contacted Vanguard and had them roll it over to a Vanguard IRA. Beyond that, I didn't really have to do any administration beyond what I did for an IRA account, except that the forms I had to fill in for opening the account were somewhat longer for the individual 401k.
Patrick appreciate your reply to my questions very much. Your answer is reassuring that I don't need a TPA if I am using a master & prototype plan through one of the main brokerage houses.
Spirit Rider wrote:
Sun Nov 04, 2018 6:24 pm
A 401k plan document must remain in compliance with all Internal Revenue Code (IRC) and Code of Federal Regulations (CFR) changes. When you have a master & prototype 401k plan through a mainstream one-participant 401k provider, e.g. ETrade Fidelity, Schwab, TD Ameritrade, Vanguard, etc... That provider maintains the plan document, makes amendments and restates the plan as necessary with you certifying it.

When you have a custom one-participant 401k plan document, the document provider must take that responsibility. If you do not pay them for document compliance and your plan subsequently is not compliant, it can result in your plan's disqualification. This can then result in the forced distribution all plan assets with them subject to ordinary income taxes and early withdrawal penalties. I know of no plan document provider that doesn't charge a yearly fee for document compliance.

The information on Fidelity's Self-Employed 401(k) Contribution Remittance Form is purely to assist you in tracking the employee elective and annual addition limits for that plan. However, Fidelity is only the custodian and trustee. You or whoever you entered on the Adoption Agreement is the plan administrator. In such a M&P plan, you are ultimately responsible for all contribution limits and plan compliance. A one-participant 401k is still 99.9% like any other 401k, not just a bigger IRA (credit tfb). You don't know just how much you don't know.
Spirit Rider this is such an illuminating post, thank you so much. The way I see things now is that as long as I keep the 401k in a custodial account at one of the main brokerages using their boilerplate document, I can handle the Form 5500-SF myself and will save the TPA fees, knowing that compliance is being taken care of. If at some point I switch to a self-directed solo 401k I will rely on the document provider to handle compliance, understanding they will charge a yearly fee. (discountsolo401k.com charges $100/year at this point and mysolo401k.net charges $125/year-this includes Form 5500-EZ and Form 1099-R preparation if required.) The only reason I see at this point why I would go with a self-directed solo 401k is if I have trouble rolling over some accounts (prior employer 403b and DCP accounts that I intend to roll over at some point) or if I want to do mega backdoor Roth conversions and the boilerplate plan does not allow it. It seems the self directed plan documents from companies like the two I mentioned above are less restrictive than some of the brokerage house boilerplate plan documents. From my reading so far, it seems Etrade has probably the least restrictive plan and I may be moving my solo 401k there.

Topic Author
Luckywon
Posts: 547
Joined: Tue Mar 28, 2017 10:33 am

Re: How to handle individual 401k administration

Post by Luckywon » Thu Mar 14, 2019 3:53 pm

Update: filed the 5500-SF for 2018 electronically today, took me about 30 minutes. Next year I think it will be much faster now I am registered on the EFAST2 system for filing. Having a previous year form did help quite a bit as far as answering some of the questions (three-digit plan number, plan characteristics) but I'm sure I could have figured it out.

Saved $650 in administration costs and I think it took less time than having to email statements, and sign authorization forms and mail them back to the administrator last year. Thanks so much to all who helped liberate me!! :)

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