| Feature/ Benefit | Small Business Owner (SBO) 401(k) Plan | ||
| Eligible Employer | Any employer, providing only the business owner/s is/are eligible to participate in the plan. Spouses of owners and partners in a partnership are considered owners. | ||
| Age Requirement | Can exclude employees under age 21 | ||
| Service and compensation requirement | Must include employees who have performed at least one year of service. A year of service can be defined as up to 1,000 hours of service during a 12-month period.
For part-timers with <1,000 hrs.: 500 hours per year for at least three consecutive years. |
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| Salary deferral allowed | Yes. Up to $22,500+ catch- up of $7,500. | ||
| Limitation on Compensation that can be used to calculate plan contributions
|
Compensation cap of $330,000 | ||
| Corporate Deductible limit
|
25% of compensation of all eligible employees | ||
| Maximum contributions allowed for employee | Lesser of 100% of employee’s compensation or $66,000+ catch- up of $7,500. | ||
| Vesting of
Contributions
|
100% immediate vesting | ||
| Deadline to
Establish Plan
|
Employer’s tax filing deadline, including extensions.
It is recommended that the plan is established as early in the year as possible to allow salary deferrals |
||
| Loans | Yes | ||
| 5500 Filing | Yes. But only if assets exceed
$250,000 |
||
|
Deadline for making/
depositing contributions
|
Salary deferrals- as soon as such
contributions can be reasonably segregated from the employer’s general assets[1]. Employer contributions-by the employer’s tax filing deadline, including extensions. |
||
| Non-discrimination testing | Required-for features, options & formulas used to compute contributions. Actual deferral percentage (ADP) and actual contribution percentage (ACP) waived if plan is a safe-harbor 401(k). | ||
| Complexity | High | ||
| Administrative cost | High | ||
| Notable notes | This is really a traditional 401(k) plan, branded with a different name. Because no testing is required, paperwork is trimmed/reduced, to exclude options that don’t apply to owner-only plans | ||
| Ideally suited for … | Business where the only eligible employees are the business owners, and their spouses. Business must either have no non-owner (common-law) employees, or all common-law employees who are under age 21 and/or work less than 1,000 hours each year. The business owner must be at least age 21 and work at least 1,000 hours or they too would be ineligible if those requirements are chosen. | ||
[1] Id
