Solo 401(k) Plans Overview
A self-employed 401(k) plan is suitable for businesses in which the owner or owners are the only employees (there are no common law employees).
The reason a self-employed individual may consider this plan option is that it may offer higher contribution limits than other retirement plans available for small businesses (SEP plans or SIMPLE IRAs). A self-employed 401(k) plan is subject to certain IRS limits and regulations, but the administrative costs can be significantly less. |
Who May Adopt?
Self-employed employers (with no common law employees).
Employee Eligibility Requirements
Maximum requirements: Age 21 and 1 year (1,000 hours) of service. Less restrictive requirements are allowed.
Employee Deferral Contributions
Please see retirement plan limits
Employer Matching Contributions
Employer may establish the plan as a traditional 401(k) plan, where matching contributions are discretionary, or as a Safe-Harbor Plan, where the Matching or SHNEC Contributions are required.
Employer Profit Sharing Contributions
Discretionary formulas allowed in any amount elected by the self-employed employer.
Maximum Annual Contributions
Employer contributions are limited to 25% of participant wages. Employee annual additions are limited to the lesser of 100% of compensation or the annual limit stipulated by the IRS (see retirement plan limits).
Are Catch-up Contributions Allowed?
Yes, please see retirement plan limits.
Contribution Deadlines
Employee deferral contributions must be deposited by the 15th business day following the month of deferral, or sooner if administratively feasible - the DOL has indicated that contributions made within 7 days will not be considered late. Employer contributions must be made by the employer’s tax filing deadline, including extensions.
Vesting Schedule
Employee deferral contributions are always 100% vested. Employer contributions may be subject to a vesting schedule. Examples of possible vesting schedules include a three (3) year cliff (0,0,100) or a six (6) year graded (0,20,40,60,80,100).
Withdrawals and Loans
Withdrawals permitted only upon termination, death, disability or retirement. Plans may elect to allow hardship or in-service withdrawals. Plans may elect to allow plan loans and must specify the parameters under which a participant can take a loan.
Administration & Reporting Requirements
Top-heavy and non-discrimination testing required. Form 5500 filing required. Fidelity Bond required.
Self-employed employers (with no common law employees).
Employee Eligibility Requirements
Maximum requirements: Age 21 and 1 year (1,000 hours) of service. Less restrictive requirements are allowed.
Employee Deferral Contributions
Please see retirement plan limits
Employer Matching Contributions
Employer may establish the plan as a traditional 401(k) plan, where matching contributions are discretionary, or as a Safe-Harbor Plan, where the Matching or SHNEC Contributions are required.
Employer Profit Sharing Contributions
Discretionary formulas allowed in any amount elected by the self-employed employer.
Maximum Annual Contributions
Employer contributions are limited to 25% of participant wages. Employee annual additions are limited to the lesser of 100% of compensation or the annual limit stipulated by the IRS (see retirement plan limits).
Are Catch-up Contributions Allowed?
Yes, please see retirement plan limits.
Contribution Deadlines
Employee deferral contributions must be deposited by the 15th business day following the month of deferral, or sooner if administratively feasible - the DOL has indicated that contributions made within 7 days will not be considered late. Employer contributions must be made by the employer’s tax filing deadline, including extensions.
Vesting Schedule
Employee deferral contributions are always 100% vested. Employer contributions may be subject to a vesting schedule. Examples of possible vesting schedules include a three (3) year cliff (0,0,100) or a six (6) year graded (0,20,40,60,80,100).
Withdrawals and Loans
Withdrawals permitted only upon termination, death, disability or retirement. Plans may elect to allow hardship or in-service withdrawals. Plans may elect to allow plan loans and must specify the parameters under which a participant can take a loan.
Administration & Reporting Requirements
Top-heavy and non-discrimination testing required. Form 5500 filing required. Fidelity Bond required.