Self-employed business owner 401(k) plan

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 apply 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.

 

(Source: Retirement Dictionary)