If you are self-employed, currently utilizing a Simplified Employee Pension (SEP) plan, but want a simple way to contribute even more to your retirement… the Solo 401(k) plan may be exactly what you need.
The IRS calls it a one-participant 401(k) plan. You may have heard people speak of a Solo 401(k), Solo-k, Uni-k… all the same thing.
What is it?…
Simply a traditional 401(k) plan covering a business owner that has no employees…. same rules and requirements as any other 401(k) plan.
How do you contribute and how much can you contribute?…
Contributions can be made in 2 forms… Elective deferrals and Non-elective employer contributions (aka the profit sharing piece, which functions just like your SEP plan)
Elective deferrals of 100% of your earned income up to $18,000 in 2015 and 2016, or $24,000 in 2015 and 2016 if age 50 or over
Non-elective employer contributions (the profit sharing piece) of 20% of your net earnings from your modified self-employment (Net SE income less ½ SE tax).
The total of contributions to a participant’s account cannot exceed $53,000 for 2015 and 2016. This amount does not include the available catch-up contributions for those age 50 and over.
When does the plan need to be established to be effective for a given year?…
A Solo 401(k) must be established no later than December 31st of the year you would like it to be in effect. So for 2016, the plan must be established by December 31, 2016.
Is there any reporting required?…
A Solo-k plan is generally not required to file an annual report (Form 5500-SF) if it has less than $250,000 in assets at the end of the year.
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