By: Niki Stehlik, CPA
The one-participant 401(k) plan, sometimes referred to as a Solo-401(k), Solo-k, Uni-k, or One-participant-k, is not a new type of 401(k) plan. According to the IRS website, a traditional 401(k) plan is a plan covering a business owner with no employees, besides and his or her spouse if applicable. These plans have many of the same rules and requirements as a traditional 401(k) plan, but are subject to the same contribution limits.
Each retirement plan option has its pros and cons. For a one-participant 401(k) plan, this is no different. Some of the pros may be the ability to make employer and employee contributions and the plan may permit loans and hardship withdrawals. The one-participant 401(k) plan may have additional administrative work, such as potential Form 5500 filings and other additional compliance requirements.
The table below provides an overview of one-participant 401(k) plans.
Best for:
Self-employed individuals without full-time employees (other than a spouse or business partner if they earn income from the business).
Tax Benefits:
Can contribute as both the employer and the employee, therefore can take advantage of:
- Tax deductible contributions as the employer
- Pre-tax contributions as the employee
- Tax-deferred growth potential on contributions
Employee Contribution Limits:
When contributing as the employee in 2019, up to $19,000 in salary deferrals ($25,000 for those 50+).
Employer Contribution Limits:
When contributing as the employer, 25% of compensation, not to exceed $56,000 ($62,000 for those 50+) in 2019.
Date Account Must be Opened by:
A new account must be opened by the end of the business’s tax year (generally December 31st).
Funding Deadline:
Account must be funded prior to the employer’s tax return due date plus extensions.
Administrative Responsibilities:
An annual IRS From 5500 must be filed after the plan assets exceed $250,000.
Unlike traditional 401(k) plans, there are no compliance testing requirements. (Compliance testing requirements ensure 401(k) plans do not favor highly compensated employees and are non-discriminatory.)
Withdrawals:
Minimum required distributions start at age 70 ½.
10% early withdrawal penalty if under age 59 ½ (exceptions may apply).
Further Details:
Please refer to the IRS website on individual 401(k)s for additional details.
If you would like to discuss retirement plan options to determine which one may be the best for your business, please contact our office at (402) 423-4343.
