Understanding the Requirements for Solo 401k Plans

I run a small business but it’s not a sole proprietorship. Can I opt for a Solo-401k? – Jeannette Lemos, Delaware

Many small business owners fail to take advantage of the benefits that a Solo 401K plan offers because they are under the misconception that this plan is only for sole proprietorships. The fact is that not just sole proprietorships, but corporations and partnerships can set up and use this plan too. The only criterion is that the business owners should be the only eligible participants to the plan.

There are several financial institutions that offer 401k plans especially designed for small businesses. These plans may be variations of their regular 401ks or special plans created just for this purpose. If you have been searching unsuccessfully for SBO-401ks with banks, mutual funds or insurance companies in your locality, it may just be a simple case of their calling it by a different name. The SBO-401k is also called the Solo 401k, Individual 401k, Uni-K plan or Self employed 401k. Just ask your bank or insurance company to tell you about the 401ks they have for small businesses. A simpler option is to set up the plan yourself and manage it on your own with a DIY 401k package such as the one offered by http://401keasyonline.com/

One important point to remember is that you need not have a business that has only you and your spouse as employees to adopt the SBO-401k. Your business can employ other staff members. But for you to adopt this special 401k for small businesses, these employees should not fulfill the eligibility criteria you choose for your 401k. If they do, then the SBO-401k is not for your business.

This makes it necessary for you pay extra attention when determining the eligibility requirements for the plan. The requirements should be such that you are eligible but your current employees are not. Remember that even if your spouse is an employee of your business and he/ she meets the eligibility criteria, you can still adopt the SBO-401k because, by law, your spouse is treated as an owner of your business.

About Elliot Earl, Director, Pension Trade Association
Director, Pension Trade Association Founded in 1982, the Pension Trade Association [California Domestic Nonprofit Corporation #C1629080] is dedicated to helping workers save for their retirement through expanded coverage of 401k -type defined contribution pension plans.

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