Solo/Owner 401(k) FAQ’s

What is a solo/owner 401(k) plan?

The solo/owner 401(k) is sometimes also referred to as individual 401(k) or uni-k. It is similar to traditional 401(k) plans popular in large companies and to SEP IRAs for the self-employed. However the Solo/Owner 401(k) is designed specially for sole proprietors and their spouse. Like IRAs, the Solo/Owner 401(k) can include traditional and/or Roth contributions. Traditional contributions are deposited on a pretax basis and grow tax-deferred; taxes are not withheld until time of distribution. Roth contributions are deposited after tax withholdings, and so it is not taxed upon distribution. Unlike SEP IRAs, Solo/Owner 401(k) plans can allow for loans.

Why should I choose a Solo/Owner 401(k) Plan over a SEP IRA?

Solo/Owner 401(k) plans benefit the business owner who wants to make large contributions. While a SEP IRA only has a limit of $5,500, Solo/Owner 401(k) plans allow the business owner to make the maximum deferral ($18,000 plus $6,000 if over 50). Not only can the owner contribute the maximum employee deferral, they can also maximize a profit sharing contribution (for a total contribution of $53,000 in 2016).

What if I have employees?

If you have employees, please consider our Safe Harbor 401(k) or Custom 401(k). The Solo/Owner 401(k) Plan can only be utilized by a business owner and his/her partner, or his/her spouse.

When can I access the funds in my Solo/Owner 401(k) Plan?

Our Solo/Owner 401(k) Plan features a Retirement Age of 65. If you need funds prior to this time, you may utilize the loan provision in the Plan document. This allows you to borrow 50% of your account balance, up to $50,000.

How are my Solo/Owner 401(k) withdrawals taxed when I retire?

If you decide to make traditional contributions into your Solo/Owner 401(k), they are taxed as income when you take your retirement distribution. However, if you make Roth contributions, these are contributed after-tax, so that you will not pay taxes upon distribution. When considering whether traditional or Roth contributions better benefit you, please consult your accountant or tax advisor!

Do I need a financial advisor?

A financial advisor can help you decide where and how to invest the funds in your Solo/Owner 401(k) Plan. Remember 401kInABox™ prepares a document that can be used with any funds company, but you are in control of deciding where to invest!

What kind of IRS filing is required for a Solo/Owner 401(k) Plan?

The IRS does not require Solo/Owner 401(k) plans to complete the annual filing of the Form 5500-EZ until the assets in the plan are at least $250,000. If you would like 401kInABox™ to help you with the Form 5500-EZ, please Login

Want more information on Solo/Owner 401(k) Plans?  IRS website features an article:

“401(k) Plans for Self-Employed Individuals – Fact? or Fiction?”