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October 23, 2012

SBO-K Plan Quick Reference Guide- 2023

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Feature/ Benefit Small Business Owner (SBO) 401(k) Plan
Eligible Employer Any employer, providing only the business owner/s is/are eligible to participate in the plan. Spouses of owners and partners in a partnership are considered owners.
Age Requirement Can exclude employees under age 21
Service and compensation requirement Must include employees who have performed at least one year of service. A year of service can be defined as up to 1,000 hours of service during a 12-month period.

For part-timers with <1,000 hrs.: 500 hours per year for at least three consecutive years.

Salary deferral allowed Yes. Up to $22,500+ catch- up of $7,500.
Limitation on Compensation that can be used to calculate plan contributions

 

Compensation cap of $330,000
Corporate Deductible limit

 

25% of compensation of all eligible employees
Maximum contributions allowed for employee Lesser of 100% of employee’s compensation or $66,000+ catch- up of $7,500.
Vesting of

Contributions

 

100% immediate vesting
Deadline to

Establish Plan

 

Employer’s tax filing deadline, including extensions.

It is recommended

that the plan is established as early in the year as possible to allow salary deferrals

Loans Yes
5500 Filing Yes. But only if assets exceed

$250,000

Deadline for making/

depositing contributions

 

Salary deferrals- as soon as such

contributions can be reasonably

segregated from the employer’s general assets[1].

Employer contributions-by the employer’s

tax filing deadline, including

extensions.

Non-discrimination testing Required-for features, options & formulas used to compute contributions. Actual deferral percentage (ADP) and actual contribution percentage (ACP) waived if plan is a safe-harbor 401(k).
Complexity High
Administrative cost High
Notable notes                     This is really a traditional 401(k) plan, branded with a different name. Because no testing is required, paperwork is trimmed/reduced, to exclude options that don’t apply to owner-only plans
Ideally suited for … Business where the only eligible employees are the business owners, and their spouses. Business must either have no non-owner (common-law) employees, or all common-law employees who are under age 21 and/or work less than 1,000 hours each year. The business owner must be at least age 21 and work at least 1,000 hours or they too would be ineligible if those requirements are chosen.

[1] Id

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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