Author Topic: Closing Solo 401k  (Read 427 times)

Edwards

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Closing Solo 401k
« on: February 28, 2024, 01:44:07 PM »
Over the years, I've tried multiple times to shut down a Solo 401k that I do not use.
The IRS has repeatedly buried me in paperwork that I do not understand and because I did not fill everything out properly, was denied the request.

Who can I speak/hire that will help me navigate this situation?
I assume this isn't something that the local HR Block representative deals with.

I'm tired of having this come up in my life every so often, and it makes me incredibly anxious to think about some ridiculous penalties that are possibly accruing.

Please help point me in the right direction so that I can get this settled. Thank you!

bacchi

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Re: Closing Solo 401k
« Reply #1 on: February 28, 2024, 01:52:50 PM »
What forms?

It's been years since I closed my Fidelity account and opened up a Vanguard one but I recall it being very easy. Called Fidelity, told them to close it, transferred the funds, and then filled out a final 5500EZ.

Edwards

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Re: Closing Solo 401k
« Reply #2 on: February 28, 2024, 02:03:22 PM »
This attachment is an example of several things....

Edwards

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Re: Closing Solo 401k
« Reply #3 on: February 28, 2024, 02:54:44 PM »
What type of person knows the ends and outs of this situation?
Who (job title) can I search for to hire, a person who understands the edge cases and can save me from an insane penalty fee for not properly filing paperwork in the past?

I'm clearly not going to be able to figure this out on my own and need professional assistance. However, I'm not sure who specifically I should be looking for. Thanks in advance for any help.

seattlecyclone

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Re: Closing Solo 401k
« Reply #4 on: February 28, 2024, 03:01:56 PM »
If the 401(k) is with Vanguard you could try calling the number at the bottom of that checklist. They should definitely be able to help you with step 1 (bring your plan documents up to date) and step 4 (move your money out). Sounds like you've stopped contributing already so step 3 is moot, and step 2 is just writing a letter to yourself about the plan closure. All that's left is then filling out the 5500 in step 5.

Edwards

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Re: Closing Solo 401k
« Reply #5 on: February 28, 2024, 03:06:04 PM »
If the 401(k) is with Vanguard you could try calling the number at the bottom of that checklist. They should definitely be able to help you with step 1 (bring your plan documents up to date) and step 4 (move your money out). Sounds like you've stopped contributing already so step 3 is moot, and step 2 is just writing a letter to yourself about the plan closure. All that's left is then filling out the 5500 in step 5.

I've spoken with a Vanguard representative already and it is closed on their end.
There is also no money in there at this time. There was only ever $10,000 which I moved over to a personal Traditional IRA during the year I first attempted to completely shut down the solo 401k (approximately 6 years ago).

My problem stems from shutting it down on the IRS's end.
In the past, I filled out a 5500-EZ and Form 5310. I don't know exactly why I was told to do both (as mentioned before, I'm quite ignorant about this). But these are where I ran into trouble (filling them out incorrectly) and the IRS kept asking for a lot more documentation. They requested things like an initial plan document, a current plan document, amendments since adoption, schedules, statements, etc. 

Clearly, I do not know what I am doing and that's why I'm seeking out brighter minds than my own.
« Last Edit: February 28, 2024, 03:14:41 PM by Edwards »

SeattleCPA

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Re: Closing Solo 401k
« Reply #6 on: February 29, 2024, 06:58:53 AM »
If the 401(k) is with Vanguard you could try calling the number at the bottom of that checklist. They should definitely be able to help you with step 1 (bring your plan documents up to date) and step 4 (move your money out). Sounds like you've stopped contributing already so step 3 is moot, and step 2 is just writing a letter to yourself about the plan closure. All that's left is then filling out the 5500 in step 5.

I've spoken with a Vanguard representative already and it is closed on their end.
There is also no money in there at this time. There was only ever $10,000 which I moved over to a personal Traditional IRA during the year I first attempted to completely shut down the solo 401k (approximately 6 years ago).

My problem stems from shutting it down on the IRS's end.
In the past, I filled out a 5500-EZ and Form 5310. I don't know exactly why I was told to do both (as mentioned before, I'm quite ignorant about this). But these are where I ran into trouble (filling them out incorrectly) and the IRS kept asking for a lot more documentation. They requested things like an initial plan document, a current plan document, amendments since adoption, schedules, statements, etc. 

Clearly, I do not know what I am doing and that's why I'm seeking out brighter minds than my own.

This is the problem with 401(k)s. And also with a bunch of other common "strategies."

The fundamental problem here is some "alleged" professional, pundit or software company promotes a low-cost or free "strategy." And then it turns out more complicated.

Coupled with this surprise is the reality that the professionals (CPAs, attorneys, etc) who could maybe help you can't do so economically.

This is a bit like DIYing the plumbing or electric work in a house you're building yourself. Then after the sheetrock is up, painting is done and carpets are in, realizing you need to redo the work because it's not up to code. At that point, there's no easy, cheap way for a journeyman plumber or electrician to come in and quickly and easily undo the errors.

There was a thread in another forum recently--maybe Bogleheads I'm not sure--and people were castigating and complaining about some member's tax accountant because she or he wouldn't during tax season help the member deal with some giant penalty the member had been assessed because of a 5500 penalties related to a solo 401(k) plan.

Here's my suggestion: Outside of tax season, find a local CPA who will help you with this. Expect to pay several hundred dollars an hour. And then going forward, keep things really simple. Simplicity scales.

Edwards

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Re: Closing Solo 401k
« Reply #7 on: February 29, 2024, 08:01:27 AM »
Thanks for the response!
Is there a reason I should wait until after tax season? Better service/lower rate?
If it is recommended I wait a couple of months before involving a local CPA, would it hurt if I attempted (again) to close it on my own? Or will this cause even more problems later on if I am unsuccessful?


Are there any other suggestions I should implement to best minimize my expected financial burden?


« Last Edit: February 29, 2024, 08:26:21 AM by Edwards »

SeattleCPA

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Re: Closing Solo 401k
« Reply #8 on: March 01, 2024, 07:04:20 AM »
Thanks for the response!
Is there a reason I should wait until after tax season? Better service/lower rate?
If it is recommended I wait a couple of months before involving a local CPA, would it hurt if I attempted (again) to close it on my own? Or will this cause even more problems later on if I am unsuccessful?


Are there any other suggestions I should implement to best minimize my expected financial burden?

Roughly half of CPA firms aren't accepting new clients. So I wouldn't think you'd find anyone until summer.

As far as trying yourself... I guess what I'd wonder about are the 5500 filing penalties you've potentially set yourself up for. If those are going to get levied, I guess you pulling the trigger won't matter that much. But seems like you'll want to have help lined up before that point.

Edwards

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Re: Closing Solo 401k
« Reply #9 on: March 01, 2024, 07:32:58 AM »
Thanks for the response!
Is there a reason I should wait until after tax season? Better service/lower rate?
If it is recommended I wait a couple of months before involving a local CPA, would it hurt if I attempted (again) to close it on my own? Or will this cause even more problems later on if I am unsuccessful?


Are there any other suggestions I should implement to best minimize my expected financial burden?

Roughly half of CPA firms aren't accepting new clients. So I wouldn't think you'd find anyone until summer.

As far as trying yourself... I guess what I'd wonder about are the 5500 filing penalties you've potentially set yourself up for. If those are going to get levied, I guess you pulling the trigger won't matter that much. But seems like you'll want to have help lined up before that point.

Thanks again. I appreciate the clarification. I won't do anything more until I can hire someone.


 

Wow, a phone plan for fifteen bucks!