Small Business Retirement Plan Comparison

Make sure that you receive the proper documentation from your financial services provider.The SBO 401(k) plan may be adopted only by businesses in which the only employees eligible to participate in the plan are the business owners.Jill’s maximum contribution is ,510.93, which is the total sum of both her ,500 maximum salary-deferral contribution and ,010.93 maximum profit-sharing contribution.

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Furthermore, for other retirement plans, the contributions may be limited to only employer contributions or, where salary deferral is allowed, the limit is less than that for the SBO 401(k) plan. Suppose that Jill, a sole proprietor who is under age 50, has a net profit of $70,000.

Jill wants to adopt a retirement plan for her business, and she would prefer to adopt a plan that allows the highest contribution limit.

After making the necessary adjustments, Jill determined that her modified net profit was $65,045.65.

The maximum employer contribution would therefore be $13,010.93 ($65,045.65 x 20%).

Before you decide to establish an SBO 401(k) plan, be sure to check with your financial services provider regarding its provisions.

In comparison to other popular retirement plans, the SBO 401(k) plan has high contribution limits (as outlined above), which is the key component that attracts owners of small businesses.Individuals who are employees of one company (in which they have no ownership) and participate in its 401(k) can also establish an SBO 401(k) for a small business they run on the side, funding it with earnings from that venture.However, their aggregate salary-deferral contributions to both plans cannot collectively exceed the IRS-established annual contribution maximums (see below).Profit-sharing contributions are limited to 25% of your compensation (or 20% of your modified net profit if your business is a sole proprietorship or partnership).The total SBO 401(k) contribution is the employee selective-deferral contribution plus the profit-sharing contribution of up to ,0.The following table outlines the approximate maximum Jill would be able to contribute with each plan for 2018 (note that the 2019 contribution limits are higher).As mentioned earlier, you may make employee elective-deferral contributions of up to 100% of your compensation but no more than the elective-deferral limit for the year (,5).In fact, the SBO 401(k) plan may be adopted by any small business, including corporations, limited liability companies (LLC), and partnerships.The only limitation is that the eligible plan participants are the business owners or their spouses, who are also employed by the business.These employees would be eligible to participate in the plan because they meet the age and service requirements.Consequently, their eligibility would disqualify your business from being suitable to adopt the SBO 401(k) plan. Some SBO 401(k) products, by definition, require further exclusions.


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