08.08.06
SBO 401(k)s for the Small Business Owner
While small business 401(k) products are known by several names including “Individual(k)”, “Solo 401(k)”, “Uni-K Plan” and “Self-Employed 401(k)”, the bottom line is that they have become more beneficial and flexible for the small-business owner in recent years.
Advantages of a SBO 401(k) include:
· High contribution limits: 25% of compensation or 20% of modified net profit for unincorporated business owners.
· Potential loan source: you can borrow up to either 50% of your plan balance or $50,000, whichever is less.
· Contributions are deductible: these plans allow you to deduct plan contributions of up to 25% of eligible compensation up to $210,000 for 2005 and $220,000 for 2006.
Disadvantages:
· Employees other than business owners are not eligible to participate.
· If your business is incorporated and you earn W-2 wages of $176,000 or more. The benefit of a SBO 401(k) is being able to make the maximum amount of contribution possible. Since the dollar limit is $44,000 for 2006, adopting a SBO 401(k) would not be necessary if you receive W-2 wages of $176,000 or more from your business, since the $44,000 limits can be achieved with pure profit-sharing contributions.
For more information on a SBO 401(k), check out the article, “401(k) Plans For The Small-Business Owner”. It provides a great overview of the program.
