Solo 401(k) FAQ - Ubiquity

About Single(k)®

Is my Single(k)® protected against creditors and/or lawsuits?

No. In order to receive that type of protection, you must have a plan that covers at least one other employee besides the owner, partner or family member.

How do I set up and manage my Single(k)® plan?

Sign up — Sign up for Single(k)® and return the necessary documents to our office.
Follow your plan documents — Once the plan is set up, you’ll need to follow the plan provisions:

Fund your Single(k)® plan with your contributions on time and
Invest those contributions through the investment vehicle of your choice.
Monitor your balance and complete any necessary tax-related forms:
Submit annual tax reporting (the Form 5500) if your 401(k) assets reach $260,000 by December 31st.
File a Form 1099-R with the IRS anytime you withdraw money from your 401(k) plan (excluding loans).

We can prepare your tax forms for you for a $195 fee (singlek@myubiquity.com or 855.401.HELP [4357] Option 3), or you can have your accountant prepare this for you.

How does Single(k)® work?

The Single(k)® retirement plan combines the convenience of 401(k) payroll deductions with the flexibility of a profit-sharing plan. With Single(k), you can set aside pre-tax or Roth (after-tax) money and also make a profit-sharing contribution if you so choose, allowing you to save up to $56,000 in 2020. You won’t pay taxes on your pre-tax savings or their earnings until you withdraw the money at retirement.

What is a Single(k)®?

Single(k)® is a flexible, easy and cost-effective way for a business owner like you to maximize your retirement savings. With tax-deferred savings of up to $53,000 for 2016 ($59,000 if you are age 50 or older), Single(k)® offers all the savings potential of a typical 401(k) plan, but it’s designed specifically for owner-only businesses or those with part-time employees. This includes sole proprietorships, closely held family businesses and corporations.

Contributions

What is the maximum profit-sharing contribution that can be made to a participant’s account?

Your company’s profit-sharing contribution depends on the type of company you have. For corporations and sole proprietorships, please see IRS guidelines.

Does the “catch-up” contribution apply to me?

If you are age 50 or older, you can contribute an additional $6,500 (for 2022) in individual pre-tax or after-tax contributions.

If two people are in a Single(k)® plan, do both have to contribute?

Individual contributions to Single(k)® are voluntary. If the company chooses to make a profit-sharing contribution, the contribution must be given to all eligible participants.

How much can I save in Single(k)®?

You can save up to $20,500 per year in individual contributions — either pre-tax or after-tax (Roth) contributions, or both ($27,000 for those age 50 or older). Although it’s not required, you can make a profit-sharing contribution for a total contribution of up to $61,000 per individual (or $67,500 for those age 50 or older) depending on the type of company you have. For corporations: The profit-sharing contribution allocation cannot exceed 25% of compensation as defined by the plan. For sole proprietors or partners: The profit-sharing contribution allocation cannot exceed 20% of your company’s net earned income.

Deadlines

Is there a deadline to fund a Single(k)® plan?

Sole proprietor: Employee and profit-sharing contributions must be funded by your tax-filing deadline. If your business is incorporated: Employee contributions must be funded within 15 business days after the month in which you pay yourself. Profit-sharing contributions must be funded by your tax-filing deadline.

Is there a deadline to establish a Single(k)® plan this year?

The deadline to establish your Single(k)® plan for this year is December 31. Sign up online and sign the Adoption Agreement by no later than December 31. (You’ll receive your Adoption Agreement once you sign up.)

Eligibility

What happens if I hire one or several full-time employees?

Prior to hiring any full-time employees, contact us at singlek@myubiquity.com or 855.401.4357, Option 3 to find out how we can assist you with additional retirement plan services that will accommodate your company’s growth. This plan can be designed with potential growth in mind. You can also get familiar with our other retirement plan options for companies with full-time employees. Note: Once an employee works more than 1,000 hours in a calendar year, you will no longer be eligible to maintain a Single(k)® plan — it’s very important that you get in touch with us at that time to discuss your options.

Can a business partner who is not related to me take advantage of a Single(k)®?

Business partners are eligible to participate in Single(k). Single(k)® can only accommodate two participants (either an owner with a spouse/family member or two owners/partners).

Can a spouse or a family member who works with me participate in a Single(k)®?

Yes. As long as your spouse or family member is on the payroll or receives income from the business, that person may participate in your Single(k)® plan. Single(k)® can only accommodate two participants (either an owner with a spouse/family member or two owners/partners).

Can I sign up for a Single(k)® if my business has employees?

You can sign up for a Single(k)® plan only if all of your employees are part-time (i.e., they work fewer than 1,000 hours per year). If you have full-time employees, contact us at hello@myubiquity.com or 855.401.7253 to explore our other 401(k) plan options that might be right for you.

Getting Started

Can I set up my Single(k)® in the name of a revocable living trust?

No. Single(k)® must be set up in your company’s name.

Can I set up automatic payments to my Single(k)®?

Ask your financial institution if you can link your bank account to your Single(k)® plan.

Do I need an Employer Identification Number (EIN)?

Yes. The IRS and certain custodians (including Charles Schwab & Co., Inc.) require an Employer Identification Number (EIN) to establish any retirement plan. This is especially the case if you are a sole proprietor and currently use your Social Security Number for your business and personal taxes. Because Single(k)® is a qualified retirement plan, it has to be sponsored by a business entity. The EIN is for your company’s retirement plan, not the business itself. Need an EIN and don’t have one? Read more here. Applying for an EIN is easy, you can do it online, over the phone, by fax or by mail.

How long until my account is set up and ready to be funded?

It takes about two weeks after we receive your signed Adoption Agreement (which we’ll send you after you sign up online) to get your account set up and ready for funding.

How do I get started?

Set up and fund your Single(k)® plan in three steps.

Step 1: You will need your EIN and credit card information to complete the online sign-up process.
(Don’t have an EIN? Click here to apply for one on the IRS Web site.)
Step 2: Complete the online sign-up process.
(This will take about 15 minutes.)
Step 3: Complete and return the necessary documents.
(We’ll send you what you need.)

Once you sign up online, we’ll send you a link to your Adoption Agreement and any other forms that need to be completed and returned to us.

Schwab clients:
If you choose Schwab as your brokerage firm, you’ll need to complete and return the necessary Schwab applications. (See below for information on Roth.) About 10–14 business days after we receive your documents, you will receive a Welcome Kit with your new Schwab account number and instructions on how to start saving.

Other brokerage firm (not Schwab):
If you select a brokerage firm other than Schwab, you will need to contact that firm and set up an account for your business. The name of the account should be [Your Company Name or Your Name (if sole proprietor)] Retirement Trust.

Note for funding Roth (after-tax) contributions:
If you plan to make after-tax Roth contributions, you MUST open an additional brokerage account and name it [Your Company Name] Roth Retirement Trust; pre-tax and after-tax contributions can not be commingled in the same account.

Hardship Withdrawals

What is a “contribution suspension”?

A “contribution suspension” is required after you take a hardship withdrawal from your Single(k)® plan. This means you cannot make individual pre-tax or after-tax contributions to the retirement plan for six (6) months. Failure to suspend contributions will result in the contributions being forfeited and re-categorized as ordinary income.

What are the tax consequences of taking a hardship withdrawal?

A hardship withdrawal is a taxable event. The money you take from the plan is taxable in the year in which it is taken. Also, if you are under the age of 59 ½, you will also be subject to a 10% early withdrawal penalty.

What documentation is required?

The amount of your hardship withdrawal is limited to the amount you need to meet the immediate hardship, including taxes and penalties. This is illustrated by your supporting documents. The IRS also restricts the type of money you can withdraw from your Single(k):

You may withdraw pre-tax contributions.
You may withdraw profit-sharing contributions and the associated earnings.
You may not withdraw earnings on pre-tax contributions.
You may not withdraw Roth contributions and any associated earnings.

If I have a hardship, how much can I withdraw?

You may withdraw pre-tax contributions.
You may withdraw profit-sharing contributions and the associated earnings.
You may not withdraw earnings on pre-tax contributions.
You may not withdraw Roth contributions and any associated earnings.

What does the IRS consider as a “hardship”?

The following are considered “hardships” by the IRS:

Medical expenses described under Code §213(d) incurred or anticipated to be incurred by the employee, the employee’s spouse or dependent. This is for all deductible medical expenses — not just the amounts that actually exceed 7.5% of adjusted gross income.
Purchase (excluding mortgage payments) of a principal residence of the employee.
Tuition and related educational fees for the next 12 months for post-secondary education for the employee, spouse, children or dependents.
Payment to prevent eviction from the employee’s primary residence or foreclosure on the mortgage on the employee’s primary residence.
Funeral expenses of a parent, spouse, child or dependent.
Certain expenses related to the repair of damage to the participant’s principal residence that would qualify for a casualty deduction on the individual’s Federal Income Tax Return under Section 165 of the Internal Revenue Code. This would include expenses incurred to repair property damage that resulted from a natural disaster, flood damage or other loss. (The amount that may be included in the hardship withdrawal would be determined without regard to whether the loss exceeds 10% of adjusted gross income.)

Can I take a hardship withdrawal from my 401(k) plan?

Single(k)® allows hardship withdrawals provided that certain criteria are met. In order to comply with IRS regulations, you are required to first take all possible distributions from the plan, including any rollover contributions and the maximum loan amount available, prior to requesting a hardship withdrawal.v

Investments

What can I invest in?

Single(k)® allows you to invest your contributions in investment vehicles (mutual funds, bonds, stocks, etc.) available through the brokerage firm of your choice. The market value of these investments should be assessed at least on an annual basis. For specific questions on the investments you can make through Single(k), please contact singlek@myubiquity.com or 855.401.4357, Option 3.

Loans

How long does it take to process the loan?

It takes about two to three business days to prepare your loan documents. Once your loan documents are ready, you can request a withdrawal from your brokerage account.

Can I borrow against my Single(k)® assets?

Yes. Single(k)® has an optional loan provision.

Minimum Amount:
$1,000

Maximum Amount:
The lesser of 50% of your vested account balance or $50,000 less your highest outstanding loan balance over the last 12 months.

For example: John has a vested account balance of $150,000. Fifty percent of his account is $75,000; however, the maximum amount that can be taken from the plan as a loan is $50,000.

Maximum Number of Outstanding Loans at One Time:
One (1)

Interest Rate:
Prime + 2%

Terms:
For a general purpose loan, the maximum loan term is up to five years. The maximum loan term for the purchase of a primary residence is 30 years.

Fees:
$90 loan origination fee.

You are responsible for making loan payments per your amortization schedule and depositing them back into the proper account. Please consult your tax advisor for more information. We recommend that you fund your loan from either pre-tax or after-tax contributions, but not both. This will make tracking and reporting easier for you in the future.

Rollovers

Do I have to sell my stocks in my IRA or previous 401(k) to roll them over to a Single(k)®?

You may be able to transfer your account “in-kind,” which means the balance will be transferred to your new plan as it currently stands in your existing plan (check with your current account provider). For accounting or audit purposes, keep track of the in-kind market value at the point of your rollover.

How long do I have to roll my previous retirement accounts into my new Single(k)® plan?

You have 60 days from the day you receive your rollover check to transfer these funds to your Single(k)® plan.

Can I roll over my current retirement plan into the Single(k)® account?

It depends on the type of plan or account from which you’re intending to roll over the funds. If you have a rollover or conduit IRA, profit-sharing plan, or 401(k) plan: Your pre-tax funds can be rolled into the Single(k)® plan. The Single(k)® plan does not allow Roth rollovers into the plan. If you have a SEP, SIMPLE, Money Purchase Plan or Contributory IRA: Please e-mail us at singlek@myubiquity.com or call us at 855.401.4357 Option 3 to discuss what you can do. If you have contributed to a SIMPLE plan this year, you can only establish a Single(k)® for the next calendar year. Government regulations do not allow you to contribute to a SIMPLE and establish a 401(k) in the same year.

Roth 401(k)

Do I need to establish a separate account for my Roth contributions?

If you will be making Roth contributions, you will need to open two brokerage accounts: one for traditional (pre-tax) contributions and one for Roth (after-tax) contributions. If you already have a Single(k)® plan with us and want to begin making Roth contributions, please open an additional brokerage account and title it [Your Company’s Name] Roth Retirement Trust.

Can my plan offer only Roth contributions?

No. In order to provide for Roth contributions, a 401(k) plan must also offer pre-tax contributions. All profit-sharing contributions are pre-tax.

Can distributions from a Roth account be rolled over?

In general, you can roll over your Roth 401(k) to another Roth 401(k) or a Roth IRA. If you want to roll your money into another Roth 401(k), you should first make sure the receiving 401(k) plan can accept it.

Can distributions from a Roth account be rolled over?

Can I withdraw money from my Roth account while I am still working?

No. Because of the complicated nature of after-tax contributions and pre-tax earnings, your plan does not allow in-service withdrawals from your Roth account.

Do Roth contributions need to be reported separately from wages, tips and other compensation on the Form W-2?

Yes. Contributions to a Roth account must be reported separately in box 12 of the Form W-2: “Wage and Tax Statement.”

Do I have any recordkeeping or reporting obligations with Single(k)®?

With Single(k)® you are responsible for keeping track of money going in and out of your 401(k) plan to ensure that limits are not exceeded and for government reporting purposes. You are also responsible for any government reporting (Form 1099-R and Form 5500EZ). We can help you with your reporting (for a $195 fee) or your personal accountant can assist you. Here is what you need to keep track of:

Contributions:
All contributions into the plan, whether they are individual contributions (pre-tax or after-tax), rollovers into the plan, or profit-sharing contributions.

Withdrawals:
Withdrawals from the 401(k) plan (excluding loans) must be reported on the Form 1099-R and sent to the IRS. The Form 1099-R is not required if you take a loan. Your brokerage account firm may be able to file the Form 1099-R on your behalf.

If I start making designated Roth contributions at the beginning of the year and later change my mind, can they be re-categorized and transferred from my Roth account to my traditional, pre-tax account?

No. Once an after-tax Roth contribution is made it is irrevocable and cannot be re-categorized as a pre-tax contribution.

Can my Roth contributions be made to my pre-tax account?

After-tax Roth contributions must be held in a separate brokerage account from any pre-tax individual or profit sharing contribution. Keeping pre-tax and after-tax Roth contributions in separate accounts will ensure that your government reporting is simple, that you are taxed correctly when taking a distribution, and that earnings on your pre-tax contributions can be easily determined.

How much may I contribute to my Roth account?

The combined amount you may contribute to a retirement plan is limited to $20,500 for 2022 ($27,000 if you are age 50 or older). Your individual contributions can be pre-tax, after-tax Roth contributions or a combination of both.

Can I make both pre-tax contributions and Roth (after-tax) contributions in the same year?

You can make up to $20,500 in individual contributions ($27,000 for those age 50 or older). Your contributions can be pre-tax, after-tax Roth contributions or a combination of both in the same year.

Who should consider saving in a Roth 401(k)?

Roth 401(k) is not just for highly paid individuals. A Roth 401(k) plan can benefit people of all income levels. You may recognize yourself in one of these scenarios:

Someone who expects tax rates to rise in the future
Younger workers and lower income taxpayers – If you expect to be in a higher tax bracket in the future, Roth contributions may be advantageous since you can pay taxes now on your contributions at a lower percentage. Also, the further you are from retirement, the longer your tax-free earnings can grow.

High-income earners – If your income exceeds the Roth IRA Adjusted Growth Income (AGI) limits, you may find the opportunity to make Roth contributions to your 401(k) plan attractive.
Participants seeking to lower taxes on Social Security benefits – Qualified withdrawals are excluded from taxable income when calculating taxes on Social Security benefits. This may be of interest if you are at least five years away from retirement.
Participants seeking estate-planning opportunities – You can roll over a Roth 401(k) to a Roth IRA and avoid the legal requirement to take withdrawals at age 70 ½. This may appeal to business owners and other individuals with substantial savings.

Roth contributions are irrevocable. Once the money goes into a Roth 401(k) account, contributions can’t be re-categorized as pre-tax contributions. You can roll over your Roth 401(k) contributions to a Roth IRA when you retire or if the plan is terminated. Please consult your financial advisor to find out if Roth 401(k) will help you to meet your retirement objectives. Ubiquity Retirement + Savings cannot advise you as to whether or not a Roth 401(k) is appropriate for your personal circumstances.

What is a Roth 401(k)?

A Roth 401(k) is a hybrid between a Roth IRA and a 401(k) plan. In a Roth 401(k), earnings on after-tax contributions grow tax-free, just like a Roth IRA. However, the contribution limits in a Roth 401(k) are significantly higher than a Roth IRA — $20,500 ($27,000 if age 50 or older) in 2022, compared to $6,000 for a Roth IRA.

Everything You Need To Know About Ubiquity's Solo 401(k)