Individual 401ks Are Exploding As New Entrepreneurs Emerge From The Workplace
What is an Individual 401k?
Solo 401ks, also known as a “Solo K” or “Individual K” is a 401k for owner-only small businesses, which was made possible by legislation passed in 2001.
Why Individual 401k Plans?
401k plans can be a valuable tool in gaining financial security in retirement. They are a great option for companies considering a retirement plan. 401k plans provide the business with higher contribution limits and other unique options that may not be available with other retirement plans.
Who is Eligible for an Individual 401k?
Under the laws and regulations affecting qualified plans, an “owner” includes all owners, as in the case of a partnership where there are two or more owners, as well as spouses of all owners, but no common law employees. Corporations, S-corporations, sole proprietors, partnerships, and LLCs may all set up individual 401k as long as they have no common-law employees, meaning only owners and their spouses work for the company.
- No nondiscrimination testing
- High contribution limits
- Limited plan reporting requirements
- Plan loans available
Why don’t Individual 401ks require nondiscrimination testing?
Since one of the rules for having an individually-owned 401k is having no common-law employees, it is not possible to discriminate against that group. Therefore, nondiscrimination testing is not required.