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Can a Sole Proprietor Have a 401k?

The Solo 401(k) Plan, also known as the individual 401(k) plan or self-employed plan was designed specifically for a person with self-employment income who is a sole proprietor or a small business owner with no full-time employees..

The Solo 401(k) plan, also called the “one-participant 401(k) plan”, is not a new type of plan. It is a traditional 401(k) plan covering only one employee. The plans have the same rules and requirements as any other 401(k) plan. The surging interest in these plans is a result of the EGTRRA tax law change that became effective in 2002. The law changed how salary deferral contributions are treated when calculating the maximum deduction limits for contributions to a 401(k) plan. This change created an opportunity for some people to put away additional amounts toward their retirement. The marketing for this type of plan is aimed at business owners who do not have any employees, other than themselves and perhaps their spouse.

Solo 401(k) Plan for sole proprietorship business
Solo 401(k) Plan for sole proprietorship business

A business owner with no common-law employees does not need to perform nondiscrimination testing for the plan, since there are no employees who could have received disparate benefits.

The no-testing advantage vanishes if the employer hires employees. No matter what the 401(k) plan is called by a plan provider, it must meet the rules of the Internal Revenue Code. If employees are hired and they meet the eligibility requirements of the plan and the Code, they must be included in the plan and their elective deferrals will be subject to nondiscrimination testing (unless the 401(k) plan is a safe harbor plan or other plan exempt from testing).

A one-participant 401(k) plan is generally required to file an annual report on Form 5500-EZ if it has $250,000 or more in assets at the end of the year. A one-participant plan with fewer assets may be exempt from the annual filing requirement.

With IRA Financial Group’s self-directed solo 401(k) Plan, also known as an individual 401(k) plan is a specially customized retirement plan, which offers strong retirement benefits and diversified investment options.  With IRA Financial Group’s self-directed 401(k) plan, a self-employed individual, such as a sole proprietor, has the ability to make annual contributions of up to $52,000 ($57,500 for those over the age of 50) for 2014, borrow up to $50,000, as well as use his or her retirement funds to make almost any type of investment on their own, including real estate, tax-deferred (tax-free in the case of a Roth solo 401(k)) without requiring the consent of any custodian.

The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP.

IRA Financial Group is the market’s leading provider of self-directed solo 401(k) plans for sole proprietors. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent.

To learn more about the IRA Financial Group please visit our website at or call 800-472-0646.

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Posted in Solo 401(k)