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Solo 401k Plan or Individual 401k Plans

Solo 401k Plans, which are also known as Individual 401k Plans represent an opportunity for individual proprietors and for those who run small business to allocate money for their retirement years. If you are one of them, this article will provide you with information on how you can benefit from these plans in order to enhance your 401 (k) plan.

Individual 401k or Solo 401k Plans Explanation

This type of plan represents a novelty that is being explored by some vendors. It is simply a way of contributing to your 401k plan and an opportunity to enhance your chances of better retirement years. Individual 401k plans are directed towards individual proprietorships.

Who is eligible?

Solo 401k plans' investors can be:

  1. Individual proprietor with no additional employees (except for his/her spouse).
  2. Partnerships. In this category, the partnerships' employees should be self-employed. Also included are their spouses.

The plan is managed by the owner of the business. The administrator can also be his/her spouse or a partner. Additionally, an appointed third person or an institution also participates in the management of the plan.

Restrictions of Solo 401k Plans

There are several limitations in the Individual 401k plans such as:

  1. An employer maximum and total salary deferral of $40,000
  2. Employers can contribute no more than 25% of payment (or 20% for self-employed)
  3. Contributions are not allowed to be more than 100% of pay
  4. Employers can contribute no more than $11,000

Compensating Provisions

In order to catch-up, an additional provision for those of at the age of 50 or more is provided. They can put in another $1,000 in terms of salary deferrals in addition to the $11,000. Moreover, this amount is not included required maximum total contribution of $40,000.

Transferring to Solo 401k plans

Individual 401k plans allow for the possibility of transferring the traditional plans into it. Under traditional plans we mean: 401k, IRA, Keoghs (Profit Sharing, Defined Benefit, and Money Purchase Pension), Qualified Plans, governmental 457 plans, 403(b) and SEP. on the other hand, you should wait for the required two-year holding period to expire in order to transfer SIMPLE IRAs to your new Solo 401k plan.

Additionally, you can apply for a loan under the Individual 401k plan similarly to the 401k plans. All participants and unincorporated business owners are eligible for this type of loan.

Solo 401k plans are advantageous to small business owners in that that they can be better performers than most of the other available options. Additionally, Individual 401k plans benefit their users by alleviating not only their company taxes, but also their personal ones.

In order to set the most appropriate Solo 401k plan that precisely meets your needs, use the services of a certified public accountant. Don't forget to revisit our site so that you can make the best choice for which mutual funds to include in your Individual 401k plan.

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