Retirement Plans for Sole Proprietors, Self
Employed or Family Companies
There are new
401k 
-like options for sole proprietors
or people running small businesses. These new products will help
these people defer more money to retirement.
Solo(k) or Individual(k) Plans
Known by both names, the new product is aimed
towards Sole Proprietorships to allow them to set-up and contribute
to a
401k plan. These are also called Solo
401(k) or Individual
401(k) plans. Since it is a new product, only a handful vendors are
beginning to market specific plans to meet this need.
Eligibility Rules
The sole proprietor must have no additional
employees other than the spouse of the proprietor or partnerships
whose only employees are self-employed partners and their spouses.
The administrator of the plan is simply the business owner, their
spouse or a partner. However, a designated third party works as
well.
Individual
401(k) Limits
Up to $11,000 can be contributed, although it
can't exceed 100% of pay. There is a total salary deferral and
employer maximum of $40,000. Employer contribution limits are up to
25% of pay or 20% for self-employed.
Catch-up Provisions
Individuals age 50 or older may contribute an
additional $1,000 in salary deferrals beyond the $11,000 (this does
not count towards the maximum total contribution limit of $40,000).
Rollovers
You are allowed to rollover or transfer your
traditional IRA, SEP, Qualified Plans or Keoghs (Profit Sharing,
Money Purchase Pension, Defined Benefit),
401(k) , 403(b) and
governmental 457 plans into the new plan. SIMPLE IRAs are eligible
for rollover after two year holding period is met.
Individual
401(k) Loans
As with
401k plans, loans are available to all
participants, including unincorporated business owners.
Bottom Line Using the
Individual(k) or Solo(k) plan can benefit small business owners
tremendously in terms of personal and company taxes, plus they allow
you to sock away more than the traditional methods. Talk to an
certified public accountant or investment advisor to see if these
plans could work for you. And once you've set up your plan, be sure
to come back to this site for information on picking the mutual
funds for the plan.
