WHAT IS A SOLO 401(k) PLAN ?
A solo 401(k) plan in which the only participants in the plan are the business owners and spouses of course, the spouses are employees of the business. There are no other "common law" employees employed by the business.
Those who qualify to establish a solo 401(k) plan are:
* Business owners (sole proprietors, partners and shareholders;
* Spouses of the business owner(s)
* Business owners and spouses are the only employees of the business.
The advantages of a solo 401(k) plans compared to SEP's, SIMPLE 401(k) plans or SIMPLE IRA plans are:
* Largest retirement plan contributions by the employer. ($54,000 or 100% of participants compensation).
* Two types of Contributions:
* Salary deferral-deferrals of up to $ 18,000 deducted from employee's W-2 wages;.
* Profit-sharing - 25% of employee's wages self-employment income. If participant is a sole proprietor or a partner, the contribution is based on income of the business limited to 25% of self-employment income.)
* The salary deferral and profit sharing contribution may not exceed $54,000 when combined.
* Loans from the plan up to $50,000 or 50% of the participants account balance.
The flexibility available to the employer regarding the annual amount of profit-sharing contributions.
* The employer may contribute as much as the lesser of 25% of a participant's income not to exceed $54,000. The profit-sharing contributions is limited to the maximum less the amount of employee's deferral.
* Profit-sharing annual contribution may be between 0% up to 25% of compensation. Thus, in very profitable years, employer may contribute the maximum. For low activity years, employer may choose to forgo making a contribution. Alternatively, employer may contribute more than 0% but less than 25% of participants compensation.