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Non-Spouse Trustees In Your Solo 401k Plan – ERISA Bonds

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Can Your Solo 401k Have a Non-Spouse Trustee?

The Solo 401k trustee has a very important role in a retirement plan. The trustee is the person who decides where, how, and when trust fund assets are spent and invested. When you want to be in charge of your of your own retirement account, you need to understand who can be a trustee and what their responsibilities are.

ERISA (Employee Retirement Income Security Act of 1974) is the governing regulation for a Solo 401k. Your Solo 401k assets must be held in a trust with a named trustee (ERISA 403(a), 29 U.S.C 1103). Although not typical, it is possible for you to delegate trustee responsibilities (in writing) to another person. Unless you delegate these responsibilities, you are the trustee of your Solo 401k. Acting as your own trustee is one of the biggest advantages a Solo 401k has compared to an IRA.

Lets’ be clear, Nabers Group as your IRS-approved document provider is NOT the trustee of your Solo 401k plan because we never touch your money, we never handle your assets, and we’ll never tell you what to invest in. Because only your money is in the 401k trust, you are able to act as administrator of your Solo 401k Plan and trustee of your Solo 401k trust. Therefore, you direct your own assets and where you want the money to be invested.

Acting As Your Own Trustee

As your own trustee, there are responsibilities involved beyond how the money is invested and how the assets are managed. These mostly pertain to IRS regulations and are generally simple compliance issues. But they do require some action that must be completed in a timely manner. Three IRS compliance actions that you want to stay on top of are:

  1. Filing informational tax return (5500-EZ form) for your Solo 401k plan only if your plan value exceeds $250,000 at any time during the tax year.
  2. If you hire employees exceeding 1,000 annual work hours, you are no longer qualified to contribute to the Solo 401k. You must either “freeze” the plan or close the plan. If you choose closing the Solo 401k and rolling the assets into another retirement account, you must notify the IRS by filing the final 5500-EZ form.
  3. Begin taking required distributions from the plan when your reach 70½ years old.

Pretty simple administrative requires, which is why most Solo 401k owners choose to be their own trustees. But you have the option to assign another person as the trustee.

If You Want a Non-Spouse Trustee

If neither you nor your enrolled spouse wants to be the trustee, you can hire a third party to be the trustee. Deciding on that person is important because they have the authority to take actions that include:

  • Physically handling cash, checks, and similar financial instruments.
  • The power to transfer funds and assets to others including themselves and/or a third party.
  • The power to negotiate on behalf of the 401k plan (including mortgages, titles, securities, etc.).
  • The authority to directly disburse assets or direct another person to disburse assets.
  • Authority to sign checks or other negotiable instruments.
  • Decision and supervision responsibility over other activities involving the Solo 401k and its assets.

For these and other reasons, it is required that non-spouse trustees be bonded.

ERISA Bond for Solo 401k Plan

According to the Field Assistance Bulletin 2008-04 , released by the Department of Labor in 2008, a plan with no employees (like the Solo 401k) is exempt from needing a fidelity bond because it is exempt from Title 1 of ERISA.

However, ERISA does require third party individuals who are responsible for the day-to-day administration of a 401k plan to be covered by a fidelity bond. The purpose of the bond is protecting 401k plan participants (you) against certain losses.

An ERISA fidelity bond is a type of insurance that protects a 401k plan from losses caused by acts of fraud or dishonesty (e.g., theft, embezzlement, or forgery) by plan officials (trustees). ERISA fidelity bonds can only be purchased from a surety or reinsurer that’s named on the Department of the Treasury’s Listing of Approved Sureties. Nabers Group can provide names of companies for clients who need this.

There are three parties to an ERISA fidelity bond – the insured, the insurer, and the covered. The 401k plan is the insured, the surety company is the insurer, and the plan official is the covered. As the insured, a Solo 401k plan can make a claim on the bond when a loss occurs. The Solo 401k can also pay the cost of the fidelity bond.

Most People Remain the Solo 401k Trustee

Some Solo 401k owners want their accountants to be more active with the account. However, the role of trustee is to be responsible for the investments of the plan. It is not recommended to give that role to somebody who you don’t want to have that responsibility.

If you want to hire your accountant to keep books, nothing further is required inside of your plan. Your role as administrator and trustee means that you are responsible for keeping the books. If you want to hire a CPA or an accountant to do some of the tasks in terms of record keeping, you can do that without adding them to the plan.

The bottom line is that you can have a non-spouse trustee in your Solo 401k plan but it may trigger the need for an ERISA bond.

The Solo 401k account converts complexity into simplicity. Go ahead and get started today!

Have questions about the Solo 401k? The experts at Nabers group will help you get your retirement funds into your control, where they belong.

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