Thanks to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) small businesses (whose only employee is the owner) can open and contribute to a self-employed 401K plan. Finally, a great tax break strictly geared to benefit the smallest business owners! On top of the tax break, the self-employed 401K offers other benefits for small business owners.
PATA’s SOLO 401K plan features…
- Loans are allowed… up to $50,000 or 50% of your vested balance
- Accepts Rollovers… Consolidate your retirement funds into one plan, rollover investments from other plans and IRAs
- Contribution flexibility… You decide what to contribute each year, if anything!! A 401k plan is a profit sharing plan. Profit sharing plans do not have a mandatory contribution requirement. In most cases you can contribute anything from 0% to 25% of your compensation.
– Deferral deadline: Deferrals must be deposited as soon as administratively possible.
(The actual deadline will depend on your entity type)
– Employer contribution deadline: The maximum 25% employer contribution must be deposited prior to filing the business’ tax return. - No annual form 5500 filing requirement… If the total plan assets are less than $250,000 (including contributions that may be receivable at year end) then the IRS gives you a “BYE” with regarding to filing the necessary form 5500 and schedules
- Investments… Many plan sponsors are using PATA to establish a Solo plan because it is possible to use any investment option available… Vanguard, American Funds, Schwab, Merrill Lynch, Fidelity etc. With PATA’s document you can invest in pension suitable investments on your own or use your existing personal financial planner. PATA and the document that PATA uses has no affiliation with any investment firm allowing the plan sponsor to invest the plan’s assets wherever s/he feels fit.
- Inexpensive to establish and maintain… Because PATA is not affiliated with any fund family or investment house, there is a fee to establish a Solo401k plan (not that a large mutual fund will not charge a setup fee). The fee is a one-time fee and is more often than not less expensive than other plans out there. Once the plan is established there is an annual document fee that keeps the plan in compliance with the tax code pertaining to retirement plans.
The Document…
The Plan Document that PATA uses is an IRS approved prototype format document. An approved document has been reviewed by the IRS and determined to be compliant with the IRS code governing pension plans. The benefit of the document PATA uses is that if the IRS decides to amend the IRS code governing pension plans, your plan will automatically be covered! For this service, there is an annual complaince usage fee of $200/year. It is a fee paid to maintain your document on PATA’s database . Unless you have an annual administration performed that $200 fee would be all it will cost to maintain your plan from year to year!
Investing your plan’s assets…
The benefit of establishing your Solo through PATA is that you can invest your contributions wherever you want! You are not locked into investing in the funds of the company you established your plan through. You can use your present broker**, invest on your own, or decide later how you want to manage the assets of your newly established Solo 401(k) plan.
* In addition to the one time setup fee, there is an annual compliance fee of $200 to keep the plan active on PATA’s document database. This fee will commence with the year following the initial plan year.
** If you do not have an established relationship with a financial advisor it is easy to establish an account on your own. If you need a licensed financial advisor to get started, PATA can assist you there as well.