The "Mini" 401(k) Plan
In addition to standard 401(k) Plans we also provide the
"Mini 401(k) Plan" for a single owner/employee, which is a newer retirement savings alternative for business owners
employing only the owner and his or her immediate family members, those who employ the owner
& only highly compensated employees, or those who employ the owner and other part-time employees that may be excluded from plan participation. These businesses include corporations, partnerships, sole proprietorships and non-profit entities. They can be incorporated or unincorporated.
Historically, 401(k)'s for these types of business owners weren't an option because salary deferrals were considered employer contributions that applied toward the employer's maximum deductible contribution. In short, nothing was gained by adopting a 401(k) plan, instead of
say a, Profit-sharing plan for these types of business owners.
Recent Pension reform legislation has changed all this to help many small business owners shelter a significantly greater portion of their income from taxation than they were previously able to do with conventional business retirement plans such as
SIMPLE's and SEP's.
A "Mini 401(k) Plan" is not suitable for businesses with existing rank and file
employees (consisting of other than family members or highly compensated
employees, or non-qualifying part-time employees). So, if you are a
"mini-sized" employer, intending to expand your business in the future,
you will need to amend the "Mini 401(k) Plan" and adopt a new plan
(i.e. regular 401(k)) before hiring such, other types, of eligible employee
participants.
Funding (2002) for the typical "Mini 401(k) Plan":
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The employer may make a deductible profit-sharing contribution equal to 25% of pay based on the first $200,000 of compensation up to
$40,000 maximum.
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Salary deferrals equal to 100% of employee's compensation up to $11,000 are permitted. Individuals age 50 or older may contribute an additional $1,000 in catch-up
contributions.
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The overall annual maximum contribution to the plan cannot exceed $40,000 or, $41,000 if age 50 or older.
Plan Establishments and Funding Deadlines:
Employers may establish a plan up until the fiscal year-end, usually December
31st of a plan year. The employer has up until the final deadline for their federal tax return to
actually "fund" the plan (input the dollars). If the business is incorporated,
then any salary deferrals must be made within the calendar year. If the business is
unincorporated (i.e. sole proprietorships, partnerships, S-Corporations, and
certain types of LLC's), salary deferrals must be made by the the tax filing
deadline of that type of business structure, including extensions.
Taxation:
Contributions up to 25% of compensation may be deducted by the employer as a business expense. Contributions and investment earnings grow tax deferred until withdrawal.
Eligibility:
Age 21; Two years of service (1000 hours within each of those two years). The employer may set less restrictive requirements.
Vesting:
Immediate 100% vesting
Hardship Withdrawals:
Not available
Loans:
Not available
Testing:
Not required
Reporting:
1099R and possibly form 5500 if assets exceed $100,000
[NOTE:
This information is intended as a guide and as general information , is not
definitive, and is f or illustrative purposes only.
The information contained herein is not intended to be used as a replacement to the
Law, to any legal forms, or to any legislative and/or other requirements.]
LeagueFinancial.com
represents
several resources for the
design and implementation of "Mini 410(k)
Plans" for our
clients.
(-31006)
Contact Us
Today! Phone: 1.800.482.5347 /
www.LeagueFinancial.com
/ Info@LeagueFinancial.com
