Frequently Asked Questions Solo 401(k)/Single(k) Plans

General Questions

What is a solo 401(k)?

A solo 401(k) is a retirement savings plan for a self-employed or sole proprietor business owner (and spouse or partner, if applicable). This individual 401(k) plan goes by different names, including Single(k), self-employed 401(k), solo 401(k), or one-participant 401(k), among others.

A solo 401(k) plan provides all the same benefits as their larger, traditional 401(k) counterparts, acting as a savings vehicle for participants to invest contributions from their paychecks. By playing both roles as both employer and employee, solo 401(k) plans allow self-employed business owners to maximize their retirement contributions. Solo business owners can then gain additional savings by deducting these 401(k) contributions, along with any plan costs, as a business expense.

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.

About Single(k)®

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, this plan offers all the savings potential of a typical 401(k) plan, but it’s designed specifically for owner-only businesses. This includes sole proprietorships, closely held family businesses and corporations.

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 make a profit-sharing contribution. You won’t pay taxes on your pre-tax savings or their earnings until you withdraw the money at retirement.

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

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 5500EZ) if your 401(k) assets reach $250,000 on December 31st of any given year
File a Form 1099-R with the IRS anytime you withdraw money from your 401(k) plan (excluding loans).

Contributions

How much can I save in Single(k)®?

Please refer to our Annual Contribution Limits, as these limits are set by the IRS and change annually.

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.

Does the catch-up contribution apply to me?

If you are age 50 or older, you can contribute an additional $7,500 (for 2023) in individual pre-tax or after-tax contributions.

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

No. Individual contributions to Single(k) are voluntary.

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.

Can I make after-tax contributions?

Ubiquity’s mega backdoor Roth 401(k) is an advanced financial planning technique that can be attractive for those looking to save more for retirement in a tax-advantaged way. The “mega backdoor” part comes in when you convert these after-tax contributions into a Roth 401(k). By doing this, you are essentially moving funds from a taxable growth environment to a tax-free growth environment.

Deadlines

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.)

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 7 business days after the date you pay yourself. Profit-sharing contributions must be funded by your tax-filing deadline.

Eligibility

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

Yes, but only if those employees are part time and work fewer than 1,000 hours per year or do not work 500 hours each year for two consecutive years. Once an employee works more than 1,000 hours in a calendar year or earn 500 hours each year for two consecutive years, 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)®?

Yes. Business partners are eligible to participate in Single(k) but be aware that a Single(k) plan can only accommodate two participants in total. Those participants can be either an owner with a spouse or two owners/partners).

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

Yes. As long as your spouse 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 or two owners/business partners).

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 <https://www.myubiquity.com/plans/> for companies with full-time employees.

Hardship Withdrawals

What is a hardship withdrawal?

Taking money from your account to help cover expenses during a hardship. The IRS defines eligible 401(k) hardships as “immediate and heavy financial needs.” These needs generally include medical care, tuition, emergency home repairs, funeral costs, and eviction prevention.

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

Yes, Single(k)<span class=”superUp”>®</span> allows hardship withdrawals provided that certain criteria are met.

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.

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 such as medical expenses, foreclosure notices, etc.

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 may be subject to a 10% early withdrawal penalty.

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 annually.

Loans

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

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

How much can I borrow?

Minimum Amount: $1,000
Maximum Amount: The lesser of 50% of your vested account balance or $50,000 maximum

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.

Are there any associated fees with taking a loan out from my retirement account?

Ubiquity charges no loan fees. However, the custodian may. 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.

How long does it take to process a 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.

Rollovers

Do I have to sell my investments 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 IRA rollovers into the plan.

Roth 401(k)

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 — $22,500 ($30,000 if age 50 or older) in 2023, compared to $6,500 for a Roth IRA.

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. 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.

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)®, managing your 401(k) plan is in your hands. You are responsible for monitoring the money going in and out to ensure that contribution limits are not exceeded and for meeting government reporting requirements. This includes handling essential documents such as Form 1099-R and Form 5500EZ. While these responsibilities are yours, we’re here to assist you in the preparation process, making it simpler to stay compliant and on track with your financial goals.

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 a Form 1099-R and sent to the IRS. Form 1099-R is not required if you take a loan. We can prepare a 1099R upon request.

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 in 2023 is limited to $22,500 for 2023 ($30,000 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?

Yes, if you adhere to the maximum contribution limits. Your contributions can be pre-tax, after-tax Roth contributions or a combination of both in the same year.

Salary Deferral Contribution

Up to $22,500

Profit-Sharing Contribution

Up to 25% of income
Up to 20% of income for self-employed

Annual Limit Per Participant

Lesser of 100% of salary or $66,000

Catch-Up Contributions (if age 50 or older)

$7,500

Terminations

What if I want to terminate my account?

Just call or email singlek@myubiquity.com to request a termination.

What do Ubiquity’s termination services include?

True-up of plan assets
Participant notifications and detailed reporting, which covers contributions, employer match, forfeitures, unallocated deposits, dividends, and interest
Generation of final reports for account closure or transfer to a new provider
Asset transfer to a new provider, when needed
Preparation for year-end reporting and non-discrimination testing, if the Plan is terminating

Please note that any custom reporting is not included and will be billed at Ubiquity’s standard hourly rate.

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 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 must be sponsored by a business entity. The EIN is for your company’s retirement plan, not the business itself. You can also use your Tax Identification Number (TIN).

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?

This depends on you and when you get the application to your chosen custodian to open your brokerage account(s). From that point it generally takes 5-7 days to get your account set up and ready for funding.

FAQs about Solo 401(k) Plans