The Individual 401k rules are the product of regulations made for retirement plans. To know the beginnings of the Solo 401k retirement plan, it is imperative to delve into the Employee Retirement Income Security Act or the 1974 ERISA. This federal regulation paved the way for significant changes in pension plans. ERISA established the minimum retirement plan standards as well as laid out tax consequences in connection with transactions made through employee benefit plans.
Impact of ERISA
The federal act of 1974 also known as ERISA regulated retirement plans particularly the reporting and disclosure of funds, vesting, funding and fiduciary duties. There are also provisions in the act that affected benefit plans including the 401(k) and profit-sharing policies. According to the Solo 401k rules, employee benefit plan sponsors could delegate the responsibility of contributing to the plan with the plan participants. This is mainly the basis of what is now known as the Solo 401 k plans.
Start of the Solo 401k
The Solo 401 k is one of the most recommended retirement plans for self-employed individuals today. in 1978, the Congress modified and added section 401k to the IRS Code. This provision allowed employees to defer compensation as well as federal tax on the Self-Directed pension plan. In January 1st 1980, the law took effect. It took IRS more than a year to finally and formally explain the regulations for the deferred salary plans.
The Individual 401k Rules Explained
One of the qualified plans from the regulatory changes in pension plans which started in 1974 is the Single-Participant 401k. It is basically designed for participants who own small businesses with no full time employees other than the owners and their spouse. More people became interested in the Solo 401 k plan because of the Economic Growth and Tax Relief Reconciliation Act or the EGTRRA of 2001. The 2001 act encouraged participants to invest additional funds to their retirement. According to the Individual 401 rules, the self-directed retirement plan offers one of the highest contribution limits. As of 2015, the total individual 401k contribution limits for participants below 50 years old is $53,000 including profit-sharing contribution. For plan holders aged 50 years and above, they can have additional catch up contribution of $6,000 making their total limit up to $59,000.
The Single-Participant 401 k plan is a popular retirement plan for self-employed and small business owners. Knowing the Individual 401k rules helps you maximize its numerous benefits.
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