A solo 401k is a retirement plan that has been made with the small business person in mind. It is a flexible retirement savings plan that is now quite popular among sole proprietors and small business owners. If your company is a partnership or if you have a corporation registered you can still participate as long as you are the business owner. Your employees cannot be registered on this plan. You will need the traditional 401k for that. However, your spouse is eligible.
There are certain eligibility requirements that you must adhere to if you are to register a solo 401k. As discussed above you need to own a small business and your spouse is also considered an owner of the said business. If you have other employees in the business who are not eligible to participate in this plan, then you can go ahead and register for it. Employees who do not qualify for the plan or who can be left out of the plan include:
Part time employees who work less than a thousand hours per year at your company.
Employees who are younger than 21 years of age.
Employees who have worked for less than a year at your organization. If they are to participate in your 401k, you can require at least one year’s service from them if they are to have tax deferred salary contributions.
An employee who has worked for less than two years at your organization is also not eligible to get the profit sharing contributions from your organization. There are however some solo 401k plans that will keep this requirement at 1 year and not 2.
If your employees fall under the above categories you can exclude them from your 401k plan and therefore may still be able to take advantage of the solo 401k.
The forms that you will be filling out in order to set up this retirement plan are ‘condensed’ versions of the ones used with the traditional 401 k. Whereas the traditional one has about 20 pages for you to fill out this one has only about 3. However, you are advised to have an advisor help you with filling out the forms and making the various elections needed so that you have their guidance and expert opinion. In addition, be sure to get all the proper documentation from your provider of choice to avoid any future confusion.