Individual/Solo 401k

[LCP]

Looks like a husband and wife owned S-corp can put significantly more into the solo 401k than a SIMPLE.

The deferral is about $5000 higher for each and the employer contribution can be 25% instead of 3%.

There are no other employees currently and as long as a new employee stays below 1000 hours they wouldn't need to be covered.

Am I missing anything?

[Brad Imsdahl]

No, you are not missing anything. It is probably the best plan out there for business owners with no employees. TTB, page 13-19 has an example where the Schedule C filer was able to put 70% of her total SE earnings into the plan.

[dsi]

Great example.

[LCP]

Looks like it can be established prior to 12/31/06 but not sure how that would impact being able to use it fully for 2006 ??

Also, there is a SIMPLE already in place and fully funded for 2006.

[Brad Imsdahl]

The elective deferrals from the SIMPLE count towards the total elective deferrals of the 401(k). Thus, if you started the 401(k) for 2006, the 401(k) elective deferrals would be reduced by what already went into the SIMPLE.

Also, you disqualify your SIMPLE for any new contributions the minute you set up the 401(k).

I would suggest switching over to the 401(k) starting in 2007.

[LCP]

Anybody have a Third Party Administrator they would recommend?

[JoshinNC]

Capital Administrators, LLC

Raleigh, NC

Call me at 919-567-9777 and I'll get you in touch.

[sea-tax]

Anybody have a Third Party Administrator they would recommend?

I would say using a local TPA is the definate way to go for a small business 401k plan. From firsthand knowledge it is much easier and the client will be much happier in the long run.

[Zee]

Anybody have a Third Party Administrator they would recommend?

Merrill Lynch is using Pioneer Mutual Funds. It's called a Uni-K. There is an annual $100 fee if the value is below $250,000. I think it's $200 above that amount. I believe a 5500 filing is required when the aggregage plan assets exceed $100,000.

[LCP]

A quick exchange of emails with a TPA got the comment "it may be too late" to convert from a SIMPLE to a Solo 401k for 2007. Any idea why?

[Zee]

A quick exchange of emails with a TPA got the comment "it may be too late" to convert from a SIMPLE to a Solo 401k for 2007. Any idea why?

I did learn a Simple must be at least 2 years old before it can be converted to a Solo 401K. I'm not sure about the comment on lateness, or timing.

[JoshinNC]

The SIMPLE must be 2 years old before rollovers are allowed

You could end the SIMPLE and start a 401k though. You just can't move the money out of the SIMPLE (unless it goes into another SIMPLE) for 2 years from the employee's initial start date in the plan.

[LCP]

You could end the SIMPLE and start a 401k though. You just can't move the money out of the SIMPLE (unless it goes into another SIMPLE) for 2 years from the employee's initial start date in the plan.

I think the problem may be that you can't have a SIMPLE and another plan in the same year and that to terminate a SIMPLE there must be 60 days notice.

I wonder if that necessarily applies if in a closely held company, the employees stop their deferrals as opposed to the employer terminating the plan?