Expert: Allen - 9/26/2008

Question
I established a profit sharing 401k plan for my C-corp. I am the sole owner/employee. (a)I need to get insurance or is that only necessary if I have other employees? (b) Do I need to ask the fed for a seperate Federal Id number for the pan? An accuary I talked to thought I should. But my CPA says not needed. What are your thoughts?  

Answer
Answers to your questions:

a. I believe the "insurance" you are referring to is a fidelity bond. This is not required if you are the only participant in the plan.

b.You do need to obtain a separate ID number for the trust that is established for the plan. This ID number is known as a trust identification number (or TIN) and is provided to the financial institution where you have accounts for the plan. When you terminate the plan and transfer the assets to a personal account or an IRA, you file a 1099R with the IRS showing the TIN because it is a distribution from the profit sharing trust.

Also be aware of the fact that you will have to file a Form 5500EZ with the government on an annual basis after the assets in the trust exceed $250,000. Even if the assets never reach this level, you have to file the form in the final year of the plan.

For matters concerning the plan, you may want to work with the actuary rather than your accountant.