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Your Business > Business Services

Solo 401(k)

A Solo 401(k) Plan, also known as a Self-Employed 401(k) Plan, is a tax-deferred retirement plan designed for self-employed business owners and their spouses. What separates this plan from other self-employed retirement plans, such as a SEP IRA, is that the Solo 401(k) Plan allows you to maximize your savings and tax deduction potential. Unlike a SEP IRA which only allows you to contribute 25% of your income, the Solo 401(k) Plan allows the business owner to contribute an employer profit sharing contribution up to 25% of your income plus an additional $17,500 ($23,000 if age 50 or older) in salary deferrals. Multiple funding options and higher contribution limits give the business owner the entire Plan benefits as both employee and employer.

Key Advantages of a Solo 401(k) Plan

  • Tax Deductions
    Within a Solo 401(k) Plan, your business can deduct the full amount of the plan’s retirement contributions from your taxable income each year. So, the higher amount of contributions, the greater the tax savings for your business. 
  • Flexible Distribution Options
    As a participant, you have easy access to your savings through flexible distribution options such as hardships and loans. Distributions are also available once a triggering event is met such as death, disability, attainment of age 59.5, retirement, or termination.
  • Traditional vs. Roth
    You have control of choosing which tax-deferred method best suits your needs. In a traditional plan, all contributions are invested tax-free until the participant decides to take withdrawals. In a Roth plan, taxes are applied to contributions up-front, and participant withdrawals are tax-free. 
  • Asset Consolidation
    Like other retirement plans, you have the flexibility to consolidate all of your retirement assets into the Solo 401(k) Plan. This will allow you the opportunity to develop and manage a comprehensive, well-diversified retirement portfolio. Eligible plans include IRA’s, 401(k) Plans, SEP IRA, Money Purchase Plans, Profit Sharing Plans, Defined Benefit Plans, SIMPLE, 403(b) Plans, and Governmental 457(b) Plans.
  • Flexible Investment Options
    A Solo 401(k) Plan at Canandaigua National Bank & Trust offers a full range of investment options to choose from in addition to experienced retirement specialists who will help you develop and manage your portfolio. Our open architecture allows you to select investments that are designed to meet your retirement goals, risk tolerance, and time horizon. Investment options include a variety of choices through our ChosenTM Retirement Year Portfolios1 and The Chosen Funds® 2
  • Cost-Effective Plan Maintenance
    Solo 401(k) Plans typically don’t require annual testing, reporting, and recordkeeping costs associated with other employer sponsored plans. The annual form 5500 filing is not required until the Plan balance exceeds $250,000. 

Would my business be able to open a Solo 401(k) Plan?

Not all businesses are suitable for Solo 401(k) Plans. In order to be eligible, you must be self-employed and have no other employees with the exception of a spouse or employees that may be lawfully excluded from plan coverage.

Eligibility Requirements:  

Eligible
Employers
Self-employed individual or business owner with no other employees other than a spouse or excludible employees
Eligible Business
Types
  • Sole Proprietorship
  • Partnership
  • Corporation
  • "S" Corporation
  • Excludible
    Employees
  • Collective bargaining unit employees.
  • Non-resident aliens.
  • Part Time Employees/ those who work less than 1000 hours per year.
  • Eligibility
    Requirements
    Age 21 and minimum 1 year of service or 1000 hours of service.

     

    Contribution limits generate higher tax deduction potential.

    There are two tax deductable elements that go into the calculation of the annual contribution limits of a Solo 401(k) Plan: Salary Deferral Contribution and Employer Profit Sharing Contribution.

    • As a participant, you can deduct 100% of your salary deferral contributions up to the maximum 2014 contribution limit of $17,500 or $23,000 if age 50 or older. 
    • As the employer, you can elect to make employer contributions up to 25% of your income (20% if a sole proprietorship).
    • The maximum aggregate contribution for 2014 is $52,000 or $57,500 if age 50 or older.

    Compare how your tax deductible contributions add up in 2014:

    Example

    Solo 401(k) Plan

    SEP IRA

    SIMPLE IRA

    Compensation

    $134,000

    $134,000

    $134,000

    Maximum Employee Contribution

    $17,500

    N/A

    $12,000

    Catch Up Contribution (if age 50 or older)

    $5,500

    N/A

    $2,500

    Employer Contribution

    $34,500

    $33,500

    $2,680*

    Total Contribution Benefit

    $57,500

    $33,500

    $17,180

     

    *The maximum compensation on which employer contributions and SIMPLE IRA 2% non-elective contributions can be based is $260,000 for the 2014 plan year.  Compensation means earned income for self-employed individuals.

    Have Questions?

     

    Contact Us
    Our experienced, non-commissioned Officers are available to personally discuss your retirement options, and determine if a Solo 401(k) Plan is the right choice for you and your business. For more information contact a representative of our Retirement Services team today at 585-419-0670

     

     

    Chosen and The Chosen Funds are trademarks of The Canandaigua National Bank and Trust Company. Before investing using mutual funds consider the fund’s investment objectives, risks, charges and expenses. For more complete information, including charges and expenses, contact your financial advisor for a prospectus. Read the prospectus carefully.

    1Portfolios are managed by OBS Financial Services, Inc., an SEC Registered Investment Advisor, and are comprised of investments from Dimensional Fund Advisors, Inc. 2Investment options are not proprietary mutual funds and are not to be considered a recommendation of any individual security. Tax information presented is not to be considered as tax advice and cannot be used for the purpose of avoiding tax penalties. Neither Canandaigua National Bank &Trust nor its affiliates provide tax, legal or accounting advice. Please consult your personal tax advisor, attorney or accountant for advice on these matters.

    This material is provided for general information purposes only and is not a recommendation or solicitation to buy or sell any particular security, product or service. Past performance is not indicative of future investment results. Any investment involves potential risk, including potential loss of capital. Before making any investment decision, please consult your legal, tax and financial advisors. Non-deposit investment products are not bank deposits and are not insured or guaranteed by Canandaigua National Bank & Trust, or any federal or state government or agency and are subject to investment risks, including possible loss of principal amount invested.

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    Chosen and The Chosen Funds are trademarks of The Canandaigua National Bank and Trust Company. Before investing using mutual funds consider the fund’s investment objectives, risks, charges and expenses. For more complete information, including charges and expenses, contact your financial advisor for a prospectus. Read the prospectus carefully.

    1Portfolios are managed by OBS Financial Services, Inc., an SEC Registered Investment Advisor, and are comprised of investments from Dimensional Fund Advisors, Inc. 2Investment options are not proprietary mutual funds and are not to be considered a recommendation of any individual security. Tax information presented is not to be considered as tax advice and cannot be used for the purpose of avoiding tax penalties. Neither Canandaigua National Bank &Trust nor its affiliates provide tax, legal or accounting advice. Please consult your personal tax advisor, attorney or accountant for advice on these matters.

    This material is provided for general information purposes only and is not a recommendation or solicitation to buy or sell any particular security, product or service. Past performance is not indicative of future investment results. Any investment involves potential risk, including potential loss of capital. Before making any investment decision, please consult your legal, tax and financial advisors. Non-deposit investment products are not bank deposits and are not insured or guaranteed by Canandaigua National Bank & Trust, or any federal or state government or agency and are subject to investment risks, including possible loss of principal amount invested.