401K Contribution Limits: FAQs For Setting Up a 401K
What is an Indi(k) plan?
The individual 401(k) is also referred to as a “Solo (k), Solo 401k), and Self Employed 401(k).” The individual (k) is a retirement plan designed for a person who is self employed and does not have employees.
The plan allows you to contribute as an employee and an employer which means you can save more than $50,000 this year in your plan.
The Indi (k) also allows you the flexibility to determine the tax treatment you will receive for your contributions. You can make tax deferred (traditional) or tax free (Roth) type contributions.
Who can have an Indi(K) plan?
The Indi (k) is for owner-only businesses or owner and spouses as long as the spouse is employed by the business and on the payroll.
The business can be incorporated or unincorporated and operate as a sole proprietor, C Corp, S Corp, partnership or LLC.
An Indi (k) can be ideal for real estate investors, real estate agents, FOREX/Futures traders, entrepreneurs, contractors, people who have a side business and many others.
What if I have employees?
If you have employees the individual (k) plan is not the plan for you. There are other terrific options for you and the best way to start the process is to call a Plan Specialist at Horizon Trust.
What’s the deadline for setting up an Individual (k) plan?
If your business is unincorporated you need to establish your plan by December 31st
If your business is incorporated the plan needs to be established by the last day of your tax year.
I have money in a Traditional IRA, can I move that into my Indi (k)?
Yes. Money from a Traditional IRA can be moved into your Indi (k). This is true for all money you contributed to your traditional that was tax deductible. Any after tax contributions made to a Traditional IRA are not eligible to be moved into your Individual (k).
I have money in a Roth IRA, can I move that into my Roth Indi(k)?
No. Currently the IRS does not allow for money in a Roth IRA to move into a Roth 401(k) or Indi (k). Money can be rolled over from a Roth Indi (k) to a Roth IRA.
How do I borrow money from my individual(k) plan?
The process is actually very simple. Download and complete the loan application and submit it to Horizon Trust.
Allow 5 days to get approval on your loan.
Once the loan is approved you can received the proceeds by wire or check.
How do the loans work?
When you borrow money from your Indi(k) the money leaves your account and goes to you. It’s important to make sure you have enough cash in your account to cover the amount you plan to borrow.
The loan is amortized so that each month you are paying down principal in addition to the interest. The money can be borrowed from 0 to 5 years.
You are able to borrow up to 50% of the value of your account or $50,000 Whichever is less.
The interest rate you pay back to your account is prime plus two.
What is my account value when I take a loan from my Indi(k)?
Your account value (for record keeping purposes) will remain the same as it was before the loan. This is because the IRS does not treat a personal loan from the plan as a distribution.
Example. Lets say you open an Indi(k) and rollover $100,000 in cash. You then decide to borrow $40,000. After the loan proceeds have been distributed to you, your account would reflect a cash position of $60,000 and a note for $40,000 for a total account value of $100,000.