Now that we’ve turned over the calendar to 2016, I thought it might be helpful to take a look at current 401(k) and 403(b) trends across the country. The marketplace is continuously changing, and 401(k) and 403(b) sponsors can maintain competitive and low cost plans by keeping current.
Stock markets tend to be pretty good at keeping investors up at night. Peaks, troughs, business cycles, corrections, and crashes are par for the course when investing in stocks. And for many investors this is just a little too much excitement.
For anyone uncomfortable with the risk of investing in stocks, bonds are often the first alternative. They won’t nock knock your socks off with huge returns, but bonds can provide steady income with less risk that your portfolio sours.
But when it comes to buying bonds, investors have a big choice to make: do you buy individual bonds or bond funds.
Unlike stocks, the choice between buying individual securities or a fund that includes individual securities has major implications.
Here’s a quick guide that explains what you need to know.
Whatever you want to call it: solo 401k, solo-k, uni-k, or one-participant-k, the retirement plan is one of my very favorite for small business owners. Solo 401k plans are easy to set up, low cost, and easy to maintain. But despite the benefits, solo 401k contribution limits and the plan’s other intricacies can be murky.
When Can You Contribute To A Solo-401(k)?
The solo 401(k) is just what the name implies – a 401(k) plan for business owners without employees.
While most often utilized by sole proprietors and single member LLCs, solo 401(k)s can also be used in partnerships, multi member LLCs, S-corporations, and C-corporations as long as there are no qualifying employees.
Basically, you can make contributions in any year that you report income from self-employment on your tax return. This can come in several forms:
- Schedule C income from a sole proprietorship or single member LLC
- W-2 compensation from an S-Corp or C-Corp
- K-1 income attributable to self employment earnings, from a partnership or multi member LLC
Solo = No Eligible Employees
Not only must you have self employment income, but you can’t have any eligible employees. This is where many business owners get tripped up, because the definition of an eligible employee can seem a bit murky.
Basically, the solo 401(k) is not much different than the traditional 401(k). Solo 401(k) plans must have a plan document that describes how the plan is to be operated, just like traditional 401(k) plans. Additionally, all 401(k) plans must be fair & equitable to all participants, and not discriminate in favor of highly compensated employees (or against non-highly compensated employees).
Solo 401(k) plans are no different. They all have plan documents that must be followed, but since there are no other participants in a solo 401(k), there is no one to discriminate against.
From an administration standpoint this is great for business owners. Making sure that a traditional 401(k) is compliant requires non-discrimination testing each and every year, which can be onerous and expensive. No employees = no testing required.