Rollovers

Call this an administrative responsibility for your plan…because it is. However, practically speaking, let’s use a recent real life example of why you want to make sure you report rollovers into your Solo-K. I am going to use the example of “Tom”, self-administered Solo-K client.

Tom established his plan in 2016 with a rollover of $1.2 million “something”. Recently, Tom called and asked me why I thought the IRS was sending him a letter saying he owed the Service $567,000 and change? Due the size of the amount stated in the letter from the IRS, I inquired if Tom had any Prohibited Transactions that he had entered into. I admit, I was initially was thrown by the amount. Nope, Tom said there were not any PT issues.

I then asked Tom if he had reported the rollover of the $1.2M “something” on his 1040 tax return in the year in which he did the rollover. As soon as I asked, he confirmed that is was what the IRS letter was referencing.

The IRS has, historically, been good on these types of issues by simply requiring the individual to reply back in writing providing proof that the entire rollover was contributed (rollover contribution) into the plan. However, as I mentioned to Tom, “by simply forgetting to do what I had reminded you to do, you had needless stress when you opened the letter.”

Moral of the story, remember what you need to remember on correctly reporting rollovers into your 401(k) plan! You are doing it correctly, so don’t forget and have unnecessary stress two years later. It is not a matter IF the IRS will send you a letter, rather exactly when!