IRA Basics
Have you been let to believe that only "Large" corporations can establish a 401(K) Plan?

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) allows self-employed persons and small business owners with no employees (other than their spouse) to set up a Personal 401(k) plan. The act allowed for changes to the laws governing traditional 401(K) plans. The changes allowed small business to enjoy the advantages of 401(K) plans without the costs that accompany regular 401(K) plans. These "Solo 401(k)" plans, allow self-employed persons to make retirement plan contributions as both the employee and the employer of his/her business, resulting in the ability to significantly increase savings for retirement.

Who Can have a Solo 401(K) Plan?

You can if you are a self employed with no employees. Eligible self employed include Sole Proprietors, Partnerships, S-Corps, C-Corps, LLC's and small family business. If you get 1099 wages, you are eligible.

You can also have a solo 401(K) plan if you have a part-time job in addition to your fulltime job. You cannot have any fulltime regular employees other than your spouse and in certain cases your children.

A company with hundreds of employees, we are here to help you navigate through the maze of qualified retirement plans available to you. If you wish to self-direct your retirement plan assets, or allow your employees to self-direct, You are allowed to self-direct any type of qualified em¬ployer sponsored retirement plan such as: 401(k) plans, Profit Sharing Plans, Defined Benefit Pension Plans, and more.

If your plan is setup properly you can have part-time or occasional employees as long as they do not work more than 1000 hours in a twelve month period.


One of the best benefits of the 401(K) is that it does not require the participant to hire a bank, custodian, trust company to serve as trustee. This flexibility allows the participant to serve the role as trustee. This means that all assets of the 401(K) trust are under the sole authority of the trustee of the plan. Any transaction that the 401(K) trust enters into is entered into by the trustee. This simplification eliminates the cost and delays of IRA custodians and or LLC formation.

As Trustees of your employees plan or your own Solo 401(K) plan, you carry fiduciary responsibility that requires you to allow for diversification of plan assets. Whether directed by you, the Trustees, or by the individual employee.

Does my 401(K) need a ERISA Fidelity Bond?

Under Department of Labor regulations, qualified retirement plans must be covered by a fidelity bond (plans covering only owners and their spouses are exempt from these bonding requirements). A fidelity bond protects the assets in the plan from misuse or misappropriation by the plan fiduciaries. At the very least, the bond must equal 10% of the value of the total plan assets, with a minimum bond value of $1,000. For the first year, the bond amount will be based on the estimated amount of assets that will be handled by the plan for the year.

Plan assets that "qualify" for a 10% bond include employer securities; participant loans; assets held by financial institutions such as banks, insurance companies, broker-dealers, or other organization authorized to hold IRA assets; mutual funds; investment and annuity contracts issued by an insurance company; and self-directed individual account plans in which the participant gets a statement of assets at least once a year. All other assets are considered non-qualifying plan assets.

However, if more than 5% of the plan assets are in limited partnerships, artwork, collectibles, mortgages, real estate or securities of "closely-held" companies and are held outside of regulated institutions such as a bank; an insurance company; a registered broker-dealer or other organization authorized to act as trustee for individual retirement accounts under Internal Revenue Code 408, the plan sponsors need to do one of two things: 1) make certain that the bond amount is equal to 100% of the value of these "non-qualified" assets or 2) arrange for an annual full-scope audit, where the CPA physically confirms the existence of the assets at the start and end of the plan year.

There are serious consequences for not purchasing and maintaining a sufficient ERISA fidelity bond. For one thing, it can be a red flag to the DOL that they need to take a closer look at the plan. In addition, in cases where a plan has more than 5% in non-qualified assets, a serious underwriting risk may arise if the non-qualified assets are not properly listed on the bond application. This is because non-qualifying assets carry a higher level of risk for loss. If the non-qualified assets are not listed on the bond, the underwriter would have cause to deny coverage if there was a loss due to misuse or misappropriation by a plan fiduciary. Under those circumstances, the loss may be denied and the trustees could be liable for the losses to the plan.