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What’s the Difference Between a Solo 401(k) and a Regular 401(k)?

Essentially, a Solo 401(k) plan just means a 401(k) plan adopted by an employer or business which has no full-time employees other than he owner(s) or their spouses. A Solo 401(k) plan is much easier and far more cost effective for a business to adopt a Solo 401(k) plan than a 401(k) plan subject to ERISA, although, we will see that for employers with employees there is not much that can be done. A Solo 401(k) plan is also known as an individual 401(k) plan, self-employed 401(k) plan, One Participant 401(k) plan, etc. The Solo 401(k) plan is not a term of art, but simply denotes a plan that was adopted by an employer with no full-time employees other than owners(s) or their spouse(s).

What's the Difference Between a Solo 401(k) and a Regular 401(k)?

The Solo 401(k) Plan is not a new type of plan. It is basically a regular 401(k) plan covering only one employee. The Economic Growth Tax Relief and Reconciliation Act of 2001 (EGTRRA) created a strong interest in the Solo 401(k) Plan. EGTRRA added employee deferrals, the loan feature, and Roth contributions to the Solo 401(k) plan making it a far better option for the self-employed or small business owner than a SEP IRA.

To learn more about the Solo 401(k) plan, please contact us @ 800.472.0646.

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