Solo 401(k) Plans from Ubiquity are Affordable and Easy to Set Up

You have the option to make either pre-tax or post-tax Roth contributions. Pre-tax contributions are not included in income when calculating taxable income for the year. Taxes are paid on these amounts and any investment earnings when the person retires and starts taking distributions from their 401(k) plan. Post-tax Roth contributions are included in taxable income. These amounts are tax-free when distributed from the plan. Any investment earnings on the Roth contributions will also be distributed tax-free if the distribution falls under set qualifiers set by the IRS.

Although solo 401(k) plans are not intended for businesses with rank and file employees, you may want to set eligibility requirements in the plan document in case you add employees at some future date. Care must be taken to not exclude yourself from the plan if selecting eligibility provisions.

Beginning in 2024, rank and file employees who work 500 or more hours annually for three years consecutively will become eligible for the plan, so it’s important to consider that when choosing your retirement plan. It may make more sense to choose a group 401(k) plan if you employ long-term, part-time employees.

Because there are no rank and file employees, your plan is exempt from compliance tests designed to ensure that lower-paid employees receive a proportionate share of plan contributions. This simplifies plan operations and lowers administrative costs.

Solo 401(k) plans are not subject to most of the annual reporting and participant disclosure requirements that apply to 401(k) plans covering employees. Once solo 401(k) plan assets reach $250,000 or more, or when you terminate the plan, the owners must file a Form 5500-EZ, Annual Return of One-Participant (owners, owners spouses and/or partners) Retirement Plan with the IRS.