Individual(k) Plans - For Entrepreneurs and Sole Proprietors
In response to tax changes that became effective in 2002, Equity Trust Company set up arrangements known as Individual (k) Plans (sometimes referred to as Solo (k) Plans) that enable sole proprietorships, partnerships, and single person corporations to set up and contribute to an arrangement that offers the same benefits as a conventional 401 (k) plan offered by larger companies.
For certain individuals, depending on income, the Individual(k) can allow contributions of twice as much or more than other retirement plans, including profit sharing plans, money purchase pension plans, Simplified Employee Pension (self-directed SEP IRA) plans and Savings Incentive Match Plans for Employees (self-directed SIMPLE IRA) plans.
As with Traditional and Roth IRAs, clients can use funds from their Individual(k) to invest in any of the various investment vehicles offered at Equity Trust Company (see Self-Directed IRA Investment Opportunities at Equity Trust).
Eligibility
Individual(k) Plans are only available to small business entities such as sole proprietorship, partnerships, single person corporations. The business entity must have no additional employees other than the spouse of the proprietor, or in the case of a partnership, the only employees are self-employed partners and their spouses. An Individual (k) Plan must be the only arrangement maintained by the business and the business cannot be considered part of a controlled group under federal tax law.
Contribution Limits
Two components comprise the maximum Individual(k) plan contribution: an employee salary deferral contribution and an employer profit sharing contribution (click to see how a self directed Individual(k) IRA at Equity Trust works).
For 2007, each owner working in the business is able to contribute up to lesser of 100% of compensation or $15,500. In addition, the separate profit sharing contribution, if any, that can be made to an Individual (k) arrangement is limited to 25% of the employee's compensation up to the annual compensation cap (if the business is a corporation) or 20% of the employee's self-employment income (if a sole proprietorship or partnership). The annual compensation cap in 2007 is $220,000 and $225,000 for 2008 and then subject to annual cost-of-living adjustments for later years. There is a total contribution limit applicable to both sources of $44,000 in 2007 ($45,000 in 2008 and then subject to annual cost-of living adjustments for later years).
In addition to the contribution limits stated above, an employee 50 years of age or older may also make an additional "catch-up" contribution amount for 2007 is $5,000 which will be indexed for inflation and increase in $500 increments starting in 2007. Therefore, if the employee is 50 years of age or older, the total contribution limit for 2007 will be $49,000 and $50,000 for 2008.
Also remember that spouses are eligible to open their own Individual(k) account provided they have separate income and are covered in the plan.
Deadlines
The deadline for establishing an Individual(k) plan, and to make an employee salary deferral election, is the last day of your business's tax year. The deadline for funding the profit sharing portion of your Individual(k) plan is your business tax return due date, including extensions.
Rollovers
You are allowed to rollover or transfer your Traditional IRA, SEP, Qualified Plans or Keoghs (Profit Sharing, Money Purchase Pension, Defined Benefit), 401(k), 403(b) and governmental 457 plans into an Individual(k) plan. SIMPLE IRAs are eligible for rollover after the two-year holding period is met.
Easy to Set Up and Administer
Because the Individual(k) is designed specifically for businesses that either have no employees or only have employees that may be excluded from coverage testing, it is less complex, less burdensome to administer, and less costly to maintain. The administrator of the plan can be the business owner, their spouse or a partner or a designated third party can be set up.
Consult your attorney, accountant or tax/investment advisor to see if an Individual(k) plan could work for you.
Compare Now
Please see answers to frequently asked questions about the self-directed Individual(k) Plan .You may also want to use the Equity Trust small business retirement plan calculator.
With Equity Trust Company's Individual(k), your fee includes your plan document, administration and filing of all necessary forms with the IRS.
View the Equity Trust Individual (k) Plan Document.
Open an Equity Trust Individual(k) Retirement Plan.
Overview of the self-directed Individual(k) Plan at Equity Trust