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FLYING SOLO with a 401(k) Plan
An individual (also known as a solo or one-participant) 401(k) plan may be a suitable choice if you are self-employed or own a small business with no employees (other than your spouse) and want to establish a tax-favored retirement plan. Below are some pros and cons associated with an individual 401(k) plan.

GENEROUS CONTRIBUTION LIMITS
An individual 401(k) plan allows you to defer up to $18,000 of compensation (or “earned income” if you are self-employed) for 2016, plus an additional $6,000 if you are age 50 or older. On top of that, your business can make a tax-deductible profit sharing contribution to the plan of up to 25% of your annual compensation (25% of “earned income” if you are self-employed). Total contributions to an individual 401(k) plan account, not counting catch-up contributions, cannot exceed $53,000 for 2016.

FEWER ADMINISTRATIVE HEADACHES
Since the plan covers only you (and potentially your spouse), the issue of disparate benefits doesn’t arise, so you won’t need to perform the type of nondiscrimination testing typically required of 401(k) plans. However, an individual 401(k) plan generally has to file an annual report on Form 5500-SF if it has $250,000 or more in assets at the end of the year. Plans with fewer assets may be exempt from the filing requirement.

LESS ROOM TO GROW
One potential drawback: If you hire employees in the future, those individuals will generally need to be included in your plan. Your individual 401(k) plan will become a regular 401(k) plan, and you will no longer benefit from the simplified administration rules.

by ClientLine.

For more info on Lucier CPA please visit http://luciercpa.com/about-lucier-cpa/
Lucier CPA, Inc. 1308 Atwood Ave, Johnston, RI 02919 (401) 946-1900


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