Solo 401k

[401kay]

If a client is looking to establish a solo 401k is there anything significantly different in the plan design, or can I use my standard FT documents and just only have one person in the plan. Am I missing something? I apologize for being so simple with this, I've just never done a solo 401k before. Thank you! 

[401kay]

I'm looking at what after-tax contributions are allowed. Where certain money can come from and what limits are associated with it but its not very clear. The difference between employee deferrals, employer matching, and after-tax non-roth contributions. 

[Lou S.]

After tax voluntary contributions can be made if allowed. They are considered an annual additions under IRC §415 and must be tested in the ACP test. So if is a one person plan you don't really need to worry about ACP testing but you do need to be mindful of 415 limits.

And obviously you need to track the source separately along with the after tax basis.

 

[CuseFan]

A qualified plan document is a qualified plan document whether for one employee/participant or 10,000. As many have echoed in this forum, a "solo 401(k)" or "solo-k" is just a marketing term for provider's product.

If you have an owner-only participant, you'll likely want pre-tax deferrals, Roth deferrals, catch-up deferrals, discretionary profit sharing and employee voluntary after-tax contributions.

If you are hoping to do for 2022 you need to hustle because document and salary deferral election will need to be signed by 12/31, and that only works if unincorporated sole proprietor, unless getting big bonus on 12/31 from which to defer.

[401kay]

Got it thank you both! Are there limits to how much can be contributed by the employer? I am thinking no more than 100% of what the employee earns in W2 income, but wondering if they're able to add additional from a profit-sharing option. 

[C. B. Zeller]

The deduction limit for employer contributions (not including deferrals) is 25% of compensation.

I know you only have one participant here, but in general, the limit is measured by adding up the compensation of all participants who benefit under the plan, and multiplying that by 25%. An individual participant can get more than 25% of comp as an employer contribution, but the total contribution for all participants should not exceed 25% of total compensation for all participants.

[Brian Dunkin]

Follow up question to 401kay's after tax question.
Does Treas. Reg § 1.415(c)-1(b)(6)(i)(C) apply to the after tax voluntary contributions for one person plans? In other words for a 12/31 plan, would the owner need to make their after tax contributions by 1/30 but have until their tax deadline plus extensions to make their deferrals and profit-sharing contributions?

Thank you!!

 

[Bill Presson]

3 hours ago, Brian Dunkin said:

Follow up question to 401kay's after tax question.
Does Treas. Reg § 1.415(c)-1(b)(6)(i)(C) apply to the after tax voluntary contributions for one person plans? In other words for a 12/31 plan, would the owner need to make their after tax contributions by 1/30 but have until their tax deadline plus extensions to make their deferrals and profit-sharing contributions?

Thank you!!

 

Correct.

[david rigby]

On 12/22/2022 at 1:42 PM, Lou S. said:

So, if is a one person plan you don't really need to worry about ACP testing, but you do need to be mindful of 415 limits.

Don't overlook what you may need to do if and when this plan covers more than one person.

[Brian Dunkin]

Thank you both very much!!