A solo 401k is a retirement savings plan for a self-employed or sole proprietor business owner (and spouse, if applicable). This individual 401k plan goes by different names including Single(k)®, self-employed 401k, Individual 401k, or one-participant 401k.
A solo 401k plan provides all the benefits of a big business 401k plan. Business owners can maximize their retirement contributions, and both contributions and plan expenses are tax deductible. With the Single(k) solution from Ubiquity Retirement + Savings™, a business owner can establish a plan online in minutes for one low fee and start saving today.
A self-employed business owner must have earned income from self-employment to contribute to a solo 401k. Self-employment can take any form; however, it does not have to be a full-time business venture.
For example, an individual may work full time for an employer and have their own business on the side.
Any income earned from the side business would be eligible to contribute to a solo 401k plan.
The business establishing the solo 401k can be structured as a sole proprietorship, partnership, or corporation. A one-participant 401k plan is intended for a business without any employees or a business with employees who are not eligible to participate in a 401k plan—for example, those who work fewer than 1,000 hours per year or who are younger than age 21.
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A business owner has the best of both worlds with a solo 401k. They have the flexibility to contribute as much as they want from year-to-year (up to the standard limits), plus, they do not have to worry about limiting their salary deferrals based on failed nondiscrimination tests caused by employees with low savings rates. They also get all the benefits of a big business 401k, such as tax deductions and loans.
Solo 401k benefits
Because there are no employees, plan administration is extremely low maintenance. There are no nondiscrimination tests, and business owners are not required to file annual reports with the IRS until the plan reaches $250,000 in assets.
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One of the most important benefits of a self-employed 401k is the large amount that can be contributed each year, tax-free.
25% of income
25% of income
Annual limit per
Lesser of 100% of income or $54,000
Lesser of 100% of income or $55,000
Catch-up contributions if age 50 or older
To establish a plan for a tax year, the business owner must sign a plan document by the last day of the business’s tax year to contribute for that year (e.g., December 31 for a calendar-year business). The document must be signed by December 31 to make contributions for that year. All contributions must be made by the business’s federal income tax return due date, including extensions.
A solo 401k plan follows most of the same rules as a regular 401k plan, with a few exceptions.Questions? Our experts are here to help
A Simplified Employee Pension (SEP) plan is an IRA-based retirement savings plan also designed for small business owners.
A SEP IRA plan is easy to administer and allows a business owner to make tax-deductible contributions up to 25% of taxable compensation (maximum of $54,000 for 2018). Although the annual limit is the same as a solo 401k plan, a business owner would need a higher level of taxable compensation to make the $54,000 maximum SEP contribution as compared to a solo 401k contribution.
Moreover, the SEP plan does not have the age 50 catch-up contribution feature which could boost savings to $60,000 for 2018.
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If you are a small business owner and need a 401k plan for yourself and your company, only Ubiquity offers flat-fee plans plus free expert advice.
We will fully customize your 401k to meet the specific needs of your small business.
Setting up a 401k can be complicated. Only Ubiquity gives small business owners access to 401k experts in addition to industry leading low flat-fees. Each sales expert has over a decade of experience assisting business owners in 401k plan design. Take advantage of this free benefit.
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