Resources > News>What you need to know about Self-Employed 401(k)s Part 5

What you need to know about Self-Employed 401(k)s Part 5

What if a self-employed individual hires employees?

The rules that apply to a “self-employed 401(k)” do not hold once an employer hires employees. They may still maintain their 401(k), but their plan document will need to be amended to account for the employees, and will be subject to more stringent reporting and testing rules.

Terminating a 401(k) Plan

401(k) plans must be established with the intention of being continued indefinitely. However, business needs may require that the employer terminate the 401(k) plan. For example, you may want to establish another type of retirement plan in lieu of the 401(k) plan.

Typically, the process of terminating a 401(k) plan includes amending the plan document, distributing all assets, and filing a final Form 5500.

What do I do once the 401(k) plan has been established?

As the prototype plan sponsor, Sunwest Trust, Inc. will provide you with your Basic Plan Document, Summary Plan Description, Plan Adoption Agreement, IRS Determination Letter and your 401(k) EIN.

The first thing that you will need to do is establish your 401(k) checking account. You may use the bank or financial institution of your choice. You will need to establish a checking account in the name of the 401(k), using the 401(k) EIN that is provided for you. The type of account you open will depend on the bank that you choose. You will need to provide them with your EIN, your 401(k) plan documents and in some cases, you business Operating Agreement and/or Articles of Organization.

If you are having trouble opening your checking account, Sunwest Trust has a arrangement with US Bank and Wells Fargo Bank and we can help you open an account with either of these two institutions.

Once you have your account open, you may want to fund it through a rollover from another qualified retirement account. To do this, you will need to fill out the Direct Rollover Request form in your 401(k) packet and send it to your current Custodian or Plan Administrator. They will send you a check made payable to your 401(k), which you can deposit directly into the new 401(k) checking account.

All contributions, distributions, investments, loans, etc. will go through that checking account. You will need to come up with a record keeping system to make sure that you are accounting for everything coming into and going out of the 401(k) checking account.

Also, we highly recommend finding a knowledgeable CPA or Tax Attorney to help you along the way.

Additional Resources:

www.dol.gov/ebsa – Click on “Publications and Reports” or “Compliance Assistance for Small Employers” for information you can use.

www.irs.gov/ep – Click on “Types of Plans” in the “Retirement Plans Community Topics” section.

Publications can be ordered by calling the appropriate agency’s toll-free number – for the IRS, 800-TAX-FORMor for DOL 866-444-3272.

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.