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Solo 401(k) – 2

Posted on Monday, September 2nd, 2013 by

Individual(k) or Solo(k) 401k -like Plans

Retirement Plans for Sole Proprietors, Self Employed or Family Companies

There are new 401(k) -like options for sole proprietors or people running small businesses. These new products will help these people defer more money to retirement.

Solo(k) or Individual(k) Plans

Known by both names, the new product is aimed towards Sole Proprietorships to allow them to set-up and contribute to a 401(k) plan. These are also called Solo 401(k) or Individual 401(k) plans. Since it is a new product, only handful vendors are beginning to market specific plans to meet this need.

Eligibility Rules

The sole proprietor must have no additional employees other than the spouse of the proprietor or partnerships whose only employees are self-employed partners and their spouses. The administrator of the plan is simply the business owner, their spouse or a partner. However, a designated third party works as well.

Individual 401(k) Limits

Up to $11,000 can be contributed, although it can’t exceed 100% of pay. There is a total salary deferral and employer maximum of $40,000. Employer contribution limits are up to 25% of pay or 20% for self-employed.

Catch-up Provisions

Individuals age 50 or older may contribute an additional $1,000 in salary deferrals beyond the $11,000 (this does not count towards the maximum total contribution limit of $40,000).


You are allowed to rollover or transfer your traditional IRA, SEP, Qualified Plans or Keoghs (Profit Sharing, Money Purchase Pension, Defined Benefit), 401(k) , 403(b) and governmental 457 plans into the new plan. SIMPLE IRAs are eligible for rollover after two year holding period is met.

Individual 401(k) Loans

As with 401(k) plans, loans are available to all participants, including unincorporated business owners.

Bottom Line

Using the Individual(k) or Solo(k) plan can benefit small business owners tremendously in terms of personal and company taxes, plus they allow you to sock away more than the traditional methods. Talk to a certified public accountant or investment advisor to see if these plans could work for you. And once you’ve set up your plan, be sure to come back to this site for information on picking the mutual funds for the plan.


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