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IRS Rules for the Solo 401(k)

The “Solo 401K plan” is an IRS approved type of qualified plan, which is suited for business owners who do not have any employees, other than themselves and perhaps their spouse. 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.

Solo 401(k) Plans are generally permitted to engage in most types of investments, however, if a Solo 401(k) Plan engages in certain types of “prohibited transactions” it may trigger a prohibited transaction which could lead to disqualification of the Solo 401(k) Plan and severe tax consequences. Therefore, it is important that you familiarize yourself with the Solo 401(k) prohibited transaction rules.

Please contact one of our tax experts at 800-472-0646 for more information.

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Posted in Solo 401(k)