Retirement Plan Knowledgebase
Owner-only Retirement Plans
Definition The law refers to qualified retirement plans for owner-only businesses as "one-participant" plans. A one-participant plan is defined as a plan which covers:
This definition applies to all types of business entities including: C or S Corporations, Sole Proprietorships, Partnerships, LLCs, or LLPs.
Qualified retirement plans for owner-only businesses were historically available in the form of:
However, starting in 2002, the EGTRRA law changed the existing pension rules to:
One-participant 401(k) Plan These new rules gave birth to a new plan type, the one-participant (or owner-only) 401(k) plan, and the combination of the one-participant 401(k) plan with a defined benefit pension plan.
In the financial services marketplace, one-participant or owner-only 401(k) plans are referred to by many names. However, whether the plan is identified as a Mini(k)Plan (Milberg version), Solo(k), Individual(k), Single(k) or Uni(k) plan, all of these "401(k) Plans" are qualified retirement plans (Profit Sharing Plans with a 401(k) feature).
This means that the plan must comply with strict governmental guidelines to retain the plan's "qualified" status. And, believe it or not, these governmental guidelines are nearly as complex for a plan that provides benefits to an owner-only business as those a company like Microsoft must follow. Failure to follow these rules may subject the plan to "disqualification." Disqualification means that all plan contributions and income on the plan investments may be retroactively taxable, and you loose the ability to rollover the plan assets to an IRA at such time that you retire.
The key question that you must ask yourself is: "Is this plan type appropriate for your situation?" Meaning, do you desire the higher tax deductible benefit that one gains using one of these plans versus a conventional plan like a SEP or a SIMPLE.
If a SEP or SIMPLE fulfills your needs (from a level of contribution/benefit perspective), you are typically better served using those plan types in that they require minimal formal compliance services.
Before you select a particular vendor's plan, know the real costs involved and what you really get for what you are really paying. Do not let anyone convince you that these plans are not complex because they are. We routinely represent individuals who have been misled by these vendors who subsequently face issues with the IRS or Department of Labor. In the end, these individuals pay more to fix their noncompliant plans than they would have had they established and administered it properly.
If you elect to engage our third party administration firm, Milberg Consulting LLC, you are assured that our plans permit you to invest the plan assets in any permissible plan investment through any one or multiple vendors (e.g., banks, mutual funds, discount broker, etc.). However, these compliance services cost more than many of the low cost providers who serve this market.
You know the old saying: "You get what you pay for." It really does apply here, so proceed with caution and educate yourself before you buy a low cost plan that requires you alone to comply with the complex rules necessary to maintain your plan's qualified status.
Milberg Consulting LLC (MC) is a third party pension administrator (TPA) focused on the distinct needs of owner-only businesses. Our nearly 30-year tenure in the design, establishment and administration of these plans, assures our clients that their plans achieve their intended objectives while retaining their qualified status.
Learn more about Qualified Retirement Plans for Small Businesses
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