Money that comes in and out of retirement accounts must be properly classified in order to remain compliant and avoid any future penalties. We’ve designed your Solo 401k online portal to help you get this done in just a couple of clicks.
Step 1: Link Your Solo 401k Bank or Brokerage Accounts
Your Solo 401k portal includes the ability to link external bank or brokerage accounts (e.g. Schwab, Titan Bank, E*Trade, etc). By linking your Solo 401k external investment accounts, you can see a list of all your Solo 401k assets and transactions connected to those account.
Once your external investment accounts are linked, it's time to move onto classifying your incoming and outgoing transactions.
Step 2: Classify Your Incoming Transactions
Classifying incoming funds is all about properly documenting what category to use on funds coming into your Solo 401k plan.
Here is a description of the list you’ll see in the app to help you make your selection:
Contribution - This is the standard contribution made by sending money from your business bank account to your Solo401k account. You will also be prompted to choose between an employee or employer contribution.
Incoming Rollover - For rolling over another retirement account, such as an IRA, into your Solo401k.
Investment Income - For tracking income from investments such as collecting rent from a rental property.
Sale of Asset - For proceeds from selling an asset held outside of a brokerage account, such as real estate.
Participant Loan Payment - For payments made back into your Solo401k to repay a participant loan.
Internal Plan Transfer In - For transferring funds within your Solo 401k plan such as from your Solo 401k Titan bank account to your Solo 401k Charles Schwab brokerage account. This is an internal transfer because it’s staying inside the same plan. The money is simply moving through different holding accounts.
Other Transfer In - Use as a last resort if no other classification fits the incoming deposit.
Fee refunded - For any fee refund received from a counterparty.
Step 3: Classify Your Outgoing Transactions
Classifying outgoing funds helps you properly document what category to use on funds leaving your Solo 401k plan.
Here is the list to choose from for outgoing transactions:
Private Asset Purchase: For buying an asset outside of a brokerage account, such as real estate.
Bill Payment: For paying bills related to assets, like a repair bill for real estate you own.
Loan Disbursement: For moving loaned money to your personal account as part of a participant loan.
Internal Plan Transfer Out: For moving money within your Solo401k plan, such as transferring funds back to Solara.
Outgoing Rollover: For rolling over funds to a completely different retirement plan, such as another IRA. This is not a commonly used classification.
Other Transfer Out: For miscellaneous transfers that don't fit other categories.
Distribution: For distributions that require a tax form to be filed at the end of the year.
Why Should I Classify My Solo 401k Transactions?
By classifying your incoming and outgoing transactions, you create a record for your Solo 401k. You're the 401k plan administrator, and this is an important step in keeping your 401k plan compliant.
When you classify your incoming and outgoing transactions, you document which funds should be treated as contributions, rollovers, investment income, etc. This helps protect you from IRS scrutiny and keeps your documents intact to ensure you are not accidentally over contributing.
Similarly, if you take a participant loan from your 401k plan, by properly classifying that transaction you ensure the (temporary) distribution is not subject to the same taxes & penalties as a "normal" 401k distribution. Further, if you are sending money out of your 401k plan to pay a bill (e.g. expenses related to a property owned by your Solo 401k), you're ensuring there is a record the funds were not improperly distributed from the 401k, and instead were used to pay an expense for a 401k-owned asset.
Using your Solo 401k app portal to properly classify incoming and outgoing transactions will help you maintain a clean record of your 401k funds movement to keep you compliant.