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If you are a self-employed
individual or small business owner with no full-time employees
(other than your spouse), then a solo 401(k) will allow you to
maximize retirement contributions by combining 401(k) compensation
deferral with profit-sharing plan contributions. Depending on the
amount of self-employment or small business income you want to
defer, a solo 401(k) may be an attractive option.
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Profit-Sharing Contribution
Tax-deductible
contribution of up to 25% of total eligible
compensation* |
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401(k)
Deferral
Tax-deductible
elective deferral contribution of up to $13,000 in 2004
(up to $16,000 if 50 years of age or older) |
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Maximum
Total Contribution
Up to the lesser
of:
- $41,000 in 2004 ($44,000 if 50
years or older), or
- 100% of compensation
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Highlights:
- Contributions are discretionary--you can
contribute any amount (or nothing at all) up to the maximum limit
in any given year
- Plan may allow loans
- Plan may allow a rollover from other types
of retirement arrangements
- Plan will generally involve fees to
establish and administer
Note:
The Economic Growth and Tax Relief Reconciliation Act of 2001 (2001
Tax Act) greatly enhanced the appeal of combining profit-sharing and
401(k) plans, leading to the creation of solo 401(k) plans (which
are also known as single participant 401(k)s and mini 401(k)s).
Unless extended, the provisions of the 2001 Tax Act relating to
employer-sponsored retirement plans will expire at the end of 2010.
For tax years beginning after December 31, 2010, the retirement plan
provisions that existed prior to the 2001 Tax Act would apply.
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