What You Need to Know if You Stop all Contributions to the 401k Plan

Solo 401k 

While plan sponsors aren’t required to make contributions to their 401(k) plan every year, contributions must be “recurring and substantial” for a plan to be considered ongoing.

IRS Audit guidelines state that if the employer hasn’t made contributions in three of the past five consecutive years, the plan may have incurred a complete discontinuance of contributions.

When this occurs, the plan sponsor must treat the plan as a terminated plan and fully vest all participant accounts for the plan to remain qualified.

Determining if there’s been a complete discontinuance of contributions is based on facts and circumstances, for example, the plan sponsor’s history of profitability, and the probability of future contributions from the sponsor.

If you haven’t made contributions to your 401k plan for three of the past five years, consider

1. Your history of profitability/ability to make contributions.
2. Whether you’ll be able to make contributions in the future.

Solo 401k Plan: Your Opportunity for Checkbook Control of Your Future