Self employed 401K - IMPLICATIONS

[Guest crr1210]

Hello,

I run a S-corporation and I am the only employee. I have adopted a self employed 401K plan and have contributed for the last two years.

I am planning to start up another company, where we will be having employees. I do not know what the 401K implications will be. What are my options. Will the employees of the new corporation have to be covered because my other company has adopted a plan. Or there will be no implications becasue they are two different entities.

Also if there are implications, am I allowed to close out the existing 401k plan.

Any pointers will be appreciated.

Thanks

[Guest Pensions in Paradise]

For qualified plan purposes, your two companies are treated as one company. This is called a controlled group.

You are not required to cover all employees, however the plan must pass a coverage test. Basically, you have to cover 70% of the eligible employees.

The plan can have a one year of service eligibility requirement, which means that you won't have to cover any additional employees for at least one year.

You need to check your plan document now. Usually the "self-employed 401(k)" documents provide for immediate eligibility. If this is the case with your document, you need to amend it now to change the eligibility to one year of service.

You can terminate and close your existing 401(k), but if you do so you will not be able to establish a new 401(k) for two years.

[Guest crr1210]

Thank you so much. This gives me a lot of clarity. Thanks again