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Individual 401(k) Plans
401(k) rules allow owner-only businesses (no employees other than owners, their spouses, and minor children) an easy and cost effective way to make larger contributions than those allowed to more traditional plans such as profit sharing and money purchase plans. Owner-only businesses that have relatively low amounts of income may gain the most benefit from establishing an Individual 401(k).
401(k) rules for 2008 permit a single person business owner
to make a salary deferral contribution up to the lesser of 100%
of pay or $15,500 (plus a $5,000 age 50+ catch-up), plus a deductible
profit sharing contribution up to 25% of compensation. Total
combined salary deferral and profit sharing contributions cannot
exceed $46,000 ($51,000 for those age 50 or older at year-end).
Which businesses should consider an Individual 401(k)?
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Businesses that employ just owners and their immediate family members, including C corporations, S corporations, partnerships and sole proprietors
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Businesses that employ the owner and other part-time or short-term employees that may be excluded from plan participation
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Businesses that have established a defined benefit plan and would like to contribute more than they can to the existing plan by making a 401(k) salary deferral
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