SBO 401(k)

Definition

An A SBO 401(k), is a 401(k) plan established by self-employed individuals for their businesses.

Brand names for these plans include Individual-K, Solo-K and Uni-K Plans

An SBO 401(k) can be adopted if the only eligible participants are the business owners and their spouses.

An SBO 401(k) is a 401(k) plan, for which the adoption agreement and plan document has been modified to exclude nondiscrimination and top heavy testing requirements that applies to a traditional 401(k) plan. These tests are not required, because the plan covers only key & non-key employees and highly-compensated employees (HCE) and non-HCEs. Brand names used by financial institutions to distinguish SBO 401(k) plans from traditional 401(k) plans include Individual(k) Plan, Uni(k) Plan and Solo(k) Plan.

Once non-owner employees are eligible to participate in the plan, the employer is no longer eligible for the SBO-K

SBO- K are often preferred over SEP IRAs, SIMPLE IRAs and profit Sharing plans because it allows higher contribution limits.

SBO-K contributions are comprised of the following:

• Salary deferral of 100-% of compensation/income, up to the salary deferral limit in effect for the year, and
• Profit sharing contribution of 25% of W-2 wages or 20% of modified net profit

Either one type (or both types) may be contributed to the plan for any year that the plan is maintained.

The aggregate contributions should not exceed the annual addition limit in effect for the year. Individuals who are at least age 50 by the end of the year may make additional catch-up contributions.

Example of maximum permissible contributions for an incorporated business

*All under age 50 and not eligible for catch-up

Example of maximum permissible contributions for an unincorporated business/partnership

*All under age 50 and not eligible for catch-up

Referring Cite

IRC § 401(k),

Additional Helpful Information

• A SBO-401(k) plan can be adopted by sole proprietorships, partnerships and corporations.
• Form 5500 series return need not be filed for a SBO 401(k), unless the plan balance is more than $250,000
• Brand names for these plans include Individual-K, Solo-K and Uni-K Plans

.