individual/solo 401(k) plans

[Guest mporterst]

My boss asked me to find the Internal Revenue Code section that deals with individual/solo 401(k) eligibility....I have spent 4 hours and I still cannot find it (i.e. owners and spouse are eligible or owners and family members, etc.).

I really have to give him a citation for the eligibility....if anyone can help out, i would truly appreciate it.

thanks

[WDIK]

"Solo 401(k)" is more of a marketing term than anything else. They are covered by the same regulations as other 401(k) plans.

[Guest mporterst]

thanks, but i cannot find the section that deals with solo 401(k) eligibility...everything that i am reading says owner and spouse...but i have to point to a specific code section that deals w/eligibility.

[WDIK]

You will not find a specific code section.

If the document that would be adopted was specifically drafted to cover only owners and their spouses that is the language to which you should refer. It should address under what circumstances the plan can be adopted and what the result would be if employees other than the owner later become eligible.

A standard 401(k) document could be adopted and the plan function as an "individual 401(k)" if only the owner meets the eligibility requirements. If other employees later meet the eligibility requirements, the plan could continue to function under this scenario.

[Guest mporterst]

thank you for your reply....if i am reading your comments correctly...i will not find a 'new' code section that deals w/solo 401(k)s.

my question still remains...why am i reading just about everywhere that only owners and their spouses can participate (not children?)...is that b/c of stock attribution rules?

in other words...who is to say that only 1 person can contribute to a solo k plan...why not maximum 3, for example. i just need some legislation to say...just 1 person can participate.

[mbozek]

See IRS Publication 560 available @ irs.gov P 11-15 for description of employers who can establish a qualified plan such as a self employed person (P11). A qualified plan must be available to a non discriminatory group of employees. If the SE person is the only employee of the business, then the plan cover a nondiscriminatory group. Why do you need legislation?

[Guest mporterst]

here is an example: owner opens his own business and establishes a solo/individual 401(k) plan almost immediately.

in year 2, he hires his wife.....can his wife participate in the plan? if so, what authority allows this (i.e. irs code).

in year 3, he hires his uncle....can his uncle participate in the plan? if no, what allows prohibits this (i.e. irs code).

for this assignment, i really have to point to a code section.

thanks!

[mbozek]

Ok try IRC 401(k)(3)(A). Or I could prepare a tax opinion for you.

[R. Butler]

here is an example: owner opens his own business and establishes a solo/individual 401(k) plan almost immediately.

in year 2, he hires his wife.....can his wife participate in the plan? if so, what authority allows this (i.e. irs code).

in year 3, he hires his uncle....can his uncle participate in the plan? if no, what allows prohibits this (i.e. irs code).

for this assignment, i really have to point to a code section.

thanks!

What will the document say? Eligibility varies by plan.

I'm going to assume (& hope) that this will be a pretty generic plan. The minimum age & service requirements are covered are covered under a Internal Revenue Code §410(a)(1). You may want to start there.