Over the past several years, a growing number of companies are selling and marketing Solo 401(k) plan documents without an IRS opinion letter, or in some cases, with an IRS opinion letter in the name of a third-party.
The Importance of Solo 401k IRS Opinion Letter
The Basic solo 401(k) plan documents will include an IRS Determination letter stating that this is a Prototype Plan that meets the requirements of a qualified plan. Generally, if an employer adopts a standardized master or prototype plan, the employer may rely on the master or prototype document sponsor’s IRS opinion letter.
The favorable opinion letter assures the employer that the IRS has approved the plan language and that any subsequent tax disqualification of the plan will not be applied subsequently as long as the plan has been otherwise lawfully operated. The assurance that plans will not be subsequently disqualified is sometimes referred to as guaranteed reliance.
Third Party IRS Opinion Letter
There has been a growing number of solo 401(k) plan providers who are marketing solo 401(k) plan documents using an opinion letter in another company’s name. By using such a company, there is a significant risk that the plan documents are not being properly updated or even IRS compliant. In fact, there are cases where companies have been using plan documents as far back as 2008, without providing any updates.
The plan sponsor is responsible for maintaining the plan. Therefore, by using a company for solo 401(k) plan documents that is not the actual plan sponsor, there is great risk that the documents may not be properly kept in IRS compliance.
Using plan documents from a company that does not have an opinion letter in their name offers significant risk. A self-employed individual or small business owner looking to adopt a solo 401(k) plan must ensure that they receive an updated IRS opinion letter and, more importantly, that the opinion letter has been issued in the name of the company selling the plan, not a third-party.
Get in Touch
To learn more about the Solo 401(k) IRS Opinion letter, contact IRA Financial Group directly at 800-472-0646.
