Me Jane, You Screwed Up

How a Financial Advisor Can Keep You Out of Trouble with the IRS

Recently I was talking with an investment advisor about what we do and how we work with clients. I mentioned that I had been following up with clients who had Solo 401ks, explaining that I have a new client who has a Solo 401K with over $250,000 in it. When we first started meeting last year I asked if he had filed an IRS Form 5500. My new client’s response was that his accountant takes care of his taxes. And my response to this was – “Does your accountant know that you have a Solo 401K and does he know that its value is greater than $250,000?”

Note: Be aware that your accountant probably does not know much about your retirement plans. There is no reportable income. There may be a contribution to it that your accountant would see, but your accountant is not likely to know how large your Solo 401K account is – because your accountant doesn’t need to know that to prepare your taxes. Fortunately, my (very thankful!) client was able to apply for the Penalty Relief Program that was available through June of 2015 and was able to avoid over $20,000 in fines for not having filed the Form 5500 for several years.

So, as I was telling this investment advisor my story he was becoming noticeably pale. Later I received an email thanking me and telling me that he had such a client whose account had been under $250,000 when it was first set up.

“I was in a panic when I got back to the office that night. Luckily, the value of my client’s Solo 401k as of 12/31/14 was $247k so I dodged a bullet! It was above $250k as of 12/31/15 but I have until July to file the form. This is another wake-up call about how it’s nice to be part of a team rather than be on an island. I was certainly aware of this filing requirement but when the account was started, it was well south of $250k and wasn’t an issue. As it grew, the filing requirement completely slipped my mind. You saved me from IRS penalties (and embarrassment with the client)!

Of course I responded that I was pleased that I could help:

“On the Solo 401K issue, I expect you are aware of the restatement of 401k that Solo 401k owners need to do. I have been following up with all of my clients who have them to make sure that they get the restatement in – the deadline is April 30th. I also have clients who have them (but not with me), so I have been reminding them as well – benefit of having a planner, even watching the assets that are not with me, and perhaps one day they will come over!

Enjoy your weekend!


His response:

“Hi Jane, I just read up on this. I really owe you big time! I remember seeing these notices from my custodian but for some reason wrote them off as not applying to Solo plans. I’m on top of it now.

Thank you SO MUCH!!

I was so concerned with the tax savings of a Solo plan and managing the account that the administrative tasks got overlooked. “

Note: If the restatement of the 401K is not done it could lose its tax deferred status.

Everyone needs a Jane. Be sure you have a financial advisor who keeps in touch and follows up with you. You may think that you are covered with your CPA, your investment guru and your lawyer, but your financial advisor is the one who puts the pieces together and has a full picture of your finances. Your Jane needs to know all about your financial life to do the best job for you. If you don’t have one now it is time to look for your own Jane! Your Jane should be aware of your estate planning situation as well as your investments and tax situation, not to mention your goals for the future.

It’s what we do.

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