'Solo 401(k) Plan' is explained in detail and with examples in the Investments edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
Solo 401(k) plans function much as their standard 401(k) plan cousins do, but display some important differences. These retirement savings plan vehicles for the self employed are also called One Participant 401(k)s, Self Employed 401(k)s, Individual 401(k)s, and Uni-Ks.
These particular 401(k)s provide business owners and spouses who do not have any employees beyond themselves with the ability to be a part of a 401(k) type of tax deferred plan. The plans are fairly new. Congress unveiled them as part of their 2001 Economic Growth and Tax Relief Reconciliation Act. At the time, these became the first specially tailored employer sponsored retirement plans intended for the self employed. Before their introduction, these self employed persons could only rely on such plans as IRAs, Keogh Plans, or Profit Sharing Plans.
These Solo 401(k)s possess practically identical requirements and rules as do the normal 401(k) plans. There are two important exceptions to this. The owner and the business do not find themselves governed by the expensive and complicated requirements of the ERISA Employee Retirement Income Security Act. Besides this, the company is not permitted to employ additional employees who are full time workers contributing 1,000 hours or more each year to the business.
Contributions also have their own particular rules with these Solo plans. The account owner is also both the employee and employer. For the 2016 tax year, employee contributions are limited to $18,000 (or $24,000 per year in the case of those who are fifty years of age or older). Other contributions can be put in as employer contributions. Whichever type a business owning participant wants to call these contributions, the limit for both employee and employer contributions may not be more than $53,000 for a given year.
One benefit that holders of these Solo 401(k) plans enjoy is that they do not have to employ a custodian as with IRAs. Instead they can work with practically any financial institution or bank as their account trustee. Assuming that the trustee will handle it, these plans are able to invest in a wide range of alternative asset types. This includes mutual funds, individual bonds and stocks, ETFs, CDs, real estate, life insurance, S corporations, and precious metals bullion such as gold or silver. Solo Plans are almost unique in their ability to invest in life insurance, which even the self directed IRA plans are not enabled to do.
This all makes the Solo 401(k)s practically unrivalled in their capability to provide retirement plans with low costs, that are easy to make transactions in, with great flexibility, and with generous contribution limits all at once. The downsides to the Solo 401(k) are two. Most workers are not allowed to participate with them. They also need a great deal of paperwork and account maintenance when measured up against numerous other types of retirement plans.
Rollovers are easy to do with these Solo plans. They are able to receive such transfers from other kinds of accounts and IRAs. Account holders may also transfer or roll them over to another kind of retirement account. It is important to check with the rules of an individual’s particular plan, as some plans do not accept rollovers from the Solo 401(k)s. Besides this, there are Solo 401(k)s that specifically do not permit rollovers.
Business owners should take care when setting up these types of accounts. Rolling over these types of retirement vehicles will not incur any IRS tax penalties, so long as they are done according to the IRS rules and regulations. An individual has 60 days to finish the procedure and may only engage in it one time per year. Failing to abide by these rules will incur regular income taxes plus the 10% penalty for early withdrawals, unless the individual is older than the 59 ½ years retirement age.

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