“owner-only” 401(k)

This board has proven immensely helpful – I was hoping for guidance on “outside the box” scenario

Does a S-Corp equally owned by father and adult son qualify for owner only 40(k) status? I’ve received conflicting information.

Thank you



No. A solo K is limited to an individual and spouse owned business.



Are you sure Alan? I thought “Solo” 401k plans were for any owner only busiensses including partnerships and multiple shareholder S-Corps. The partners/owners shares are required to be at least 10% and they must materially participate and receive compensation in the business. The term “Solo” is in fact a marketing term that is not based in fact. It has a better ring to it than “minimal compliance 401k plans with no discrimination testing required, so we don’t have to charge any fees”.



Info on Solo 401Ks can be found on this IRS page:  http://www.irs.gov/Retirement-Plans/One-Participant-401(k)-Plans  “The one-participant 401(k) plan isn’t a new type of 401(k) plan. It’s a traditional 401(k) plan covering a business owner with no employees, or that person and his or her spouse. These plans have the same rules and requirements as any other 401(k) plan.”



Bill, from what I can tell, some firms are setting up solo K’s for non spouse partnerships with no employees. I cannot locate any clear IRS guidance on the extent eligibility can be expanded beyond the sole proprietorship model. Vanguard is doing the partnership solo K’s and they are very conservative. Multiple S Corp shareholders appear to be another step in expanding eligibility, and I do not know how far this can be extended without clear IRS or DOL guidance.



I believe the reason that Vaguard, Fidelity, etc… have expanded the eligibility of “Solo” 401k plans to owner-employees and their spouses is because these plans were really just a marketing and administrative classification. The real difference between an owner-employee plan and a general purpose small business plan is the presence or lack thereof of common law employees. This then translates into greatly reduced compliance requirements. Owners and their spouses are consider HCEs. Plans limited to just them are plans containing HCEs only. Such plans require no ADP, ACP, etc… non-discrimination testing. Since these plans require greatly reducced compliance requrements on the custodians. This enables them to offer these plans generally without administrative costs. My guess is that Vanguard, Fidelity and others have submitted prototype 401k plans and received determination letters that allow these plans to be used for all owner-employee businesses. After all, there is really no such thing as a “Solo” 401k plan, but rather a 401k plan document whether prototype or custom that complies with IRS regulations. 



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