TDA Solo 401(k) Problem

[AlmstRtrd]

Hi All,

My wife and I both have solo 401(k) accounts with TDA, as well as solo 401(k) Roth accounts. All of these needed to be "restated" this year as of 4/30/16. This is something that the IRS requires every six years (so the last time was 4/30/10, I believe). If this restatement paperwork is not filled out and sent in on time, it's necessary to bring one's info up to date and THEN go through an IRS Voluntary Corrections process which costs money. If this is not all done properly, these accounts risk losing their tax-deferred status (or, in the case of the Roths, their tax-free status).

My issue is that we never got any notices from TDA until months after the fact. They insist that they started contacting customers in March but I think they are just trying to cover their butts. Has anyone else had this problem with TDA? If so, how was it resolved?

And as to why I don't just file the paperwork with the IRS, it looks like there is a $750 penalty (processing fee, or whatever they want to call it) per account.

Many thanks in advance for any help!

[terran]

Ouch, sorry to hear about that. I'm afraid I can't help, but thanks for the heads up about this requirement. It's the first I've heard about it, so I've added a calendar reminder for myself for when mine should be due.

[AlmstRtrd]

Hey terran, Can I ask which brokerage you are using for your solo 401(k), or solo 401(k) Roth? People who I know that have their solo 401(k) with Fidelity were notified about this restatement requirement a year in advance. The only reason I opened these accounts with TDA is that Fidelity doesn't do solo 401(k) Roth accounts (and none of their reps seem to know why!). Thanks.

[AlmstRtrd]

To be clear, these accounts were ALL supposed to be "restated" by 4/30/16, regardless of when they were opened. We started our plans in early 2014.

[terran]

I'm with fidelity, but yeah, no roth available. I opened mine May 2015 with a January 2015 effective date. I haven't heard anything about this from fidelity, so hopefully I opened it recently enough that I'm exempt from this? Do you have a reference somewhere about this requirement?

[terran]

Given this:

The IRS requires that prototype documents and volume submitter plans must be rewritten, reviewed and approved by the IRS, and readopted by employers once every six years to conform with tax law changes.  The IRS has now directed 401(k) plans to begin a new restatement cycle that started on May 1, 2014 and ends April 30, 2016.

from http://www.retirementplanblog.com/401k-plans/irs-opens-window-for-pension-protection-act-of-2006-restatements/ -- I'm guessing since my  plan was started within the restatement window it probably already reflects the changes older plans need to be restated to include. Yours was probably started before May 1, 2014? Does this match your understanding of things?

[AlmstRtrd]

I'm guessing since my plan was started within the restatement window it probably already reflects the changes older plans need to be restated to include. Yours was probably started before May 1, 2014? Does this match your understanding of things?

Yeah, you're probably correct in your assessment. Our accounts with TDA were opened in February of 2014 or thereabouts. Thanks for following up on this. Much appreciated.

The really upsetting thing is that we are now apparently on the hook for IRS penalties because TDA dropped the ball with the notifications. Fidelity (at least according to what I was told) sends out several notifications, the first one being a year in advance.

Trying to figure out if I should keep fighting with TDA (they simply claim that they sent the notifications in March of this year), OR if I should just set up an appointment with someone from the IRS to plead my case... that being that I am happy to be compliant with the paperwork but that I was never informed of the need to take action.

Any other TDA solo 401(k) folks out there?

[terran]

I would get going with the IRS. According to that article I linked above:

If you miss the deadline for amending or restating your plan, then you can avoid plan disqualification by using an IRS correction program. Under this program, the IRS will require that you pay a sanction and submit an updated plan. The sanction can vary depending on the circumstances.  However, it is significantly higher if the IRS discovers the missed deadline than if you voluntarily go to the IRS when you discover the missed deadline. In addition, there would be the cost associated for our services to update the plan and prepare the application to the IRS.

After that I guess you can try to recover damages from TD, but I wouldn't have super high hopes.

[AlmstRtrd]

Ah, got it and many thanks. How much am I paying you again???

[terran]

lol... no charge. Just a bit of google fu. And now I know this is something I need to watch out for in a few years.

[BlueHouse]

I would call the IRS immediately and let them know the issue.  My BIL was recently fined $25K PER YEAR because he didn't know he had to fill out the form-5500 for his solo 401K.  He called the IRS, explained he just didn't know and that he'd only hit the limit 2 years prior and that because he was over 60, it would be a real hardship for him to pay that kind of fine.  They waived the entire fine.  Apparently, they have a lot of discretion in actually levying fines. 

[AlmstRtrd]

Thanks for that, BlueHouse. I actually did call the IRS earlier today to try to set up a preemptive meeting. I was told I couldn't get an appointment unless the IRS had already sent me a bill. I guess they don't like it when folks are proactive!

The way I understand the TDA end of things (and I'm guessing that this goes for other brokerages) is that they are just responsible for getting the paperwork in case the IRS comes asking for it. They don't actually send it along to the IRS. So my plan now is to hope to benefit from the IRS being chronically understaffed. These are certainly not big accounts. TDA tells me to file the IRS Voluntary Corrections paperwork, but I think they are just following protocol.

Incidentally, I put the date of 4/30/16 on the other two forms I sent in today (for our solo 401(k) Roth accounts). Will call TDA in a few days to see if that paperwork has been filed.

I'm guessing that there are others on this forum that have dealt with this issue who have just not seen this thread but thank you both for your help.

[NoStacheOhio]

Trying to figure out if I should keep fighting with TDA (they simply claim that they sent the notifications in March of this year), OR if I should just set up an appointment with someone from the IRS to plead my case... that being that I am happy to be compliant with the paperwork but that I was never informed of the need to take action.

Any other TDA solo 401(k) folks out there?

If they sent it out, then there should be some kind of documentation beyond "we sent it." What date? Paper mail? Inbox notification? Email?

If you have a decent balance, you could also threaten to take your money elsewhere.

[Bojack]

I received a notification from TDA sometime last year as I restated it this year in early January. I understand why you contacted the IRS, but for next time - they would have no way of knowing when your document was restated. They go by the date it was executed. So if you have an adoption agreement in hand that was executed on 3/30/2016, that would have been fine.

Just so you know - the IRS doesn't not view it was TDA's responsibility to notify you when a restatement is due. That is the plan sponsor's responsibility. You could certainly argue it's bad business not to notify you (again, they notified me last year), but you aren't paying for any third party services here.

[Miss Piggy]

Does this only apply to Roth Solo 401(k)s or does it ally to ALL Solo 401(k)s?

[Bojack]

Does this only apply to Roth Solo 401(k)s or does it ally to ALL Solo 401(k)s?

All defined contribution qualified retirement plans should have been restated by 4/1/2016. Roth solo 401ks is simply a solo 401k with a Roth feature, so yes it is included.

[Miss Piggy]

Does this only apply to Roth Solo 401(k)s or does it ally to ALL Solo 401(k)s?

All defined contribution qualified retirement plans should have been restated by 4/1/2016. Roth solo 401ks is simply a solo 401k with a Roth feature, so yes it is included.

Thank you for the reply.

[AlmstRtrd]

Does this only apply to Roth Solo 401(k)s or does it ally to ALL Solo 401(k)s?

All defined contribution qualified retirement plans should have been restated by 4/1/2016. Roth solo 401ks is simply a solo 401k with a Roth feature, so yes it is included.

The restatement date was actually 4/30/16 but, yes, Bojack is correct that it applies to both Roth and non-Roth solo 401(k)s.

And just an update... I wrote an email to TDA last week about my situation and got a voicemail today that my situation has ben resolved and that the paperwork on file now shows that my restatement forms were filed by 4/30/16. So brokerage forms can do something about this.

Don't take my word for it (speak with your accountant if you have a good one) but I THINK the best course of action for those in my situation is just to send in the restatement paperwork and backdate it to 4/30/16. My understanding is that brokerage firms just need to have the forms on file in case the IRS requests to see them.

[Bojack]

Does this only apply to Roth Solo 401(k)s or does it ally to ALL Solo 401(k)s?

All defined contribution qualified retirement plans should have been restated by 4/1/2016. Roth solo 401ks is simply a solo 401k with a Roth feature, so yes it is included.

The restatement date was actually 4/30/16 but, yes, Bojack is correct that it applies to both Roth and non-Roth solo 401(k)s.

And just an update... I wrote an email to TDA last week about my situation and got a voicemail today that my situation has ben resolved and that the paperwork on file now shows that my restatement forms were filed by 4/30/16. So brokerage forms can do something about this.

Don't take my word for it (speak with your accountant if you have a good one) but I THINK the best course of action for those in my situation is just to send in the restatement paperwork and backdate it to 4/30/16. My understanding is that brokerage firms just need to have the forms on file in case the IRS requests to see them.

You're right on the date. An FYI - I'm not sure what TDA is saying but if you are ever audited, the IRS will be looking at the execution date of the document.  You are the plan sponsor. You are responsible for having the executed document. In this arrangement, TDA is the custodian of your assets, nothing else. Having said that, most solo(k)'s aren't even on the IRS' radar so your audit risk is likely low.

[AlmstRtrd]

Many thanks for your help on this, Bojack. I'll make sure to have properly dated restatement forms in my files. Incidentally the IRS was too disinterested in my situation to even find out who I was, so no harm was done by contacting them.

[DavidAnnArbor]

If the plan assets are more than $250K you have to file Form 5500 which would be an annual tax filing if the plan exceeds $250,000 at the end of the year. The filing deadline is July 31.

"If your solo 401(k) is worth more than $250,000, you can have your plan administrator or CPA make the required filing. However, they will ordinarily charge you for this service—often as much as $200. You can easily do this very simple tax filing yourself and save the money."

http://www.nolo.com/legal-encyclopedia/the-rules-filing-irs-form-5500-your-solo-401k-plan.html