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Individual 401(k) Part 3

In the last two blog entries, we have learned about Individual 401(k)s.  The first entry discussed some advantages of the 401(k), such as the loan provision and higher contribution limits.  In the last entry, we learned about trustees and how to administer your 401(k) plan.  Today we’re going to learn about rollovers and reporting requirements.

There are many types of qualified retirement accounts that may be rolled into your Individual 401(k).  You may roll money over from Traditional, SEP and Simple IRAs.  You may also roll money over form qualified retirement accounts, such as corporate 401(k)s, 403(b)s, 457s, etc.  If you have questions about whether or not your particular retirement account can be rolled into an Individual 401(k), please contact a trusted CPA or tax attorney.  You may have noticed that I didn’t list Roth IRAs as a type of plan that can be rolled over.  At this time, Roth IRAs cannot be rolled over into your Individual 401(k) plan, even though your plan may contain Roth deferrals.  This subject may be addressed and changed in a future 401(k) amendment, but as of right now, you cannot rollover Roth IRA money into your 401(k).

Now that you know what types of plans can be rolled over in your Individual 401(k) and you know your contribution limits, it’s time to learn what IRS reporting needs to be done.  Until your Individual 401(k) accumulates $250,000.00 there is no IRS reporting that needs to be done.  You will need to check with your CPA to make sure you are reporting contributions correctly when you pay your taxes, but as far as the 401(k) itself is concerned, there is no reporting to do.

Once your account accumulates $250,000.00, you will need to begin preparing an annual 5500 EZ form.  Your CPA or tax professional can help you prepare this form.  After reaching the $250,000.00 mark, you will need to fill out this form and send it to the IRS each year.

Please remember that this is an extremely simplified explanation of the Individual 401(k).  To get more information on the Individual 401(k) and find out if it is the right retirement plan option for you, make sure to contact a CPA or tax professional.

Click here for the i401K Application

Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.