We aren’t trying to confuse you by asking this question. An individual plan and Solo-K plan are the same. Whether the plan is called a Solo 401k, Solo 401(k), One Participant Plan or Uni-K, they are the same. They may also cover that individual’s and potentially that person’s business partner and/or spouse.
From an IRS perspective, there would not be any difference in the different titling of the plan. (generally speaking). It is critical that one qualifies for the Solo-K. So, why does this even matter and how might it affect you?
If you go anywhere on the IRS site, you will see they reference a Solo-K as a One Participant 401(k) Plan. However, on the IRS site, they will even note that this type of plan is often referenced by other titles including the aforementioned titling. Simply speaking, the titling is more of a marketing term than an IRS-dictated term. You gotta love marketing!
So, regardless of the exact titling, what are the differences?
Call your friend Chuck (Charles Schwab) and they’ll have you open an Individual 401(k) plan. Tell Chuck that you are wanting to establish a Solo-K, and they will probably tell you they do not sponsor those types of plans.
Difference? Again, nothing, but just the terminology. It seems like brokerage firms like the titling of the Individual 401(k) plan. It seems like the promoters of a trustee-directed Solo-K plan gravitate toward some use of “solo” in its title. They will emphasize that, as the Trustee, you will have “checkbook control”. Further, the emphasis that, from one account, you can invest in both traditional (e.g., mutual funds) and non-traditional (e.g., real estate) assets.
Angst and Frustration – To not get exercised, you want a brokerage firm to know that you do not want “their” Individual 401(k). You simply want the ability to “house” your Solo-K with them. Not all brokerage firms will even permit you to do this. But, for the ones that do, you will have checkbook control of your plan’s funds, neither will they do any IRS reporting. While they may allow you to “house” your Solo-K with their firm, they will not and do not sponsor the plan. When you work with a company such as PGI, a PGI-sponsored plan document will be used to open your account at firms such as Schwab, Fidelity, TD Ameritrade and E*Trade. And, they will require that you have the IRS-compliant Adoption Agreement filed.
What is the difference between housing and sponsoring your plan?
“Housing” simply means you have the luxury of controlling how you invest your retirement assets, without their interference. They cannot tell you how to invest your funds, nor are they responsible for any IRS reporting.
There are brokerage firms which will permit you to open an account for the Solo-K plan, but will not create a checkbook-controlled plan themselves. This is for a variety of reasons including not wanting any compliance responsibilities (e.g., they can’t confirm you are following rules when you may be investing in assets they do not sell).
Moral of this Blog? While it is always good to be informed…and, in conjunction with you creating your Solo-K plan…you may want to speak to the brokerage firm about their features. You won’t necessarily want to ask them if they will give you checkbook control and allow you