In short
A solo 401(k) is a 401(k) plan for a self-employed person with no employees other than a spouse. The owner contributes as an employee (elective deferrals) and as the employer (a profit-sharing contribution), up to a combined annual limit.
Key takeaways
- Employer contributions for a sole proprietor are limited to 20% of net self-employment earnings (25% of wages for an incorporated owner).
- Elective deferrals can be made as Roth contributions.
- Once plan assets exceed $250,000, an annual return (Form 5500-EZ) is required.
Where it's tested
TCP: Retirement Planning Strategies — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
An employee leaves her job in the year she turns 56 and takes a distribution from that employer's 401(k) plan. What is the effect of the 10% early withdrawal penalty?