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February 16, 2009

SBO 401(k)

Your Guide

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Definition

An SBO 401(k), is a 401(k) plan established by self-employed individuals for their businesses.

Brand names for these plans include Individual-K, Solo-K and Uni-K Plans

An SBO 401(k) can be adopted if the only eligible participants are the business owners and their spouses.

An SBO 401(k) is a 401(k) plan, for which the adoption agreement and plan document has been modified to exclude nondiscrimination and top heavy testing requirements that applies to a traditional 401(k) plan. Brand names used by financial institutions to distinguish SBO 401(k) plans from traditional 401(k) plans include Individual(k) Plan, Uni(k) Plan and Solo(k) Plan.

Once non-owner employees are eligible to participate in the plan, the employer is no longer eligible for the SBO-K

SBO- K are often preferred over SEP IRAs, SIMPLE IRAs and profit Sharing plans because the contribution limit is higher , depending on the individual’s income for the year and age ( for the year)

SBO-K contributions are comprised of the following:

  • Salary deferral of 100-% of compensation/income, up to the salary deferral limit in effect for the year, and
  • Profit sharing contribution of 25% of W-2 wages or 20% of modified net profit

Either one type (or both types) may be contributed to the plan for any year that the plan is maintained.

The aggregate contributions should not exceed the annual addition limit in effect for the year. Individuals who are at least age 50 by the end of the year may make additional catch-up contributions

Referring Cite

IRC § 401(k),

Additional Helpful Information

  • A SBO-401(k) plan can be adopted by sole proprietorships, partnerships and corporations.
  • Form 5500 series return need not be filed for a SBO 401(k), unless the plan balance is more than $250,000
  • Brand names for these plans include Individual-K, Solo-K and Uni-K Plans

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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SIMPLE 401(k) Plan

Definition A SIMPLE 401(k) plan is a 401(k) plan  established by a small business for it’s employees. Earnings accrue on a tax-deferred basis and distributions

2-Year Rule (SIMPLE IRA)

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