Owner-Only Businesses

As the name suggests, owner-only plans are best for companies that only consist of owners with more than 5% ownership and spouses of owners. While this plan type is similar to a traditional 401(k) plan, there are some unique features to owner-only plans.

Higher 401(k) Contribution Limits

In 2018 the maximum deferral amount for a 401(k) is $18,500 ($24,500 if age 50 or over). A major benefit of the owner-only plan is that you can add profit sharing which may increase your contribution limits to $55,000.

401(k) Advantages Over Traditional IRA
401(k) Traditional IRA
Maximum Employee Contribution in 2018 $18,500 $5,500
Age 50+ catch-up amount in 2018 $6,000 $1,000
Optional profit sharing Up to 25% of W-2 payroll with a cap of $55,000 N/A
Roth option Yes No
Penalty-Free Access if Needed Yes, via loan No
Roth Income Limit None $135,000*

*In 2018, the contribution begins to decrease at $120K for single individuals, hitting $0 at $135K. For those filing jointly the contribution limit begins to decrease at $189K, hitting $0 at $199K.

401(k) Tax Benefits -- Less Taxing, More Saving

A 401(k) plan may provide significant tax benefits.

Personal Tax Benefits:

  • Lowers your and your employees’ taxable income – Contributions to your 401(k) plan automatically lowers your taxable income. For example, let’s say this year you earn $60,000, of which you contribute $15,000 to your 401(k) plan. This contribution means that your taxable income will be reduced by your $15,000 contribution. These taxes don’t go away; they are deferred and are paid upon distribution
  • Tax Deferred Growth – Any pre-tax contributions you make, plus any gains from investing those funds over time, will not be taxed until you start taking distributions in retirement.
  • Roth 401(k) – The Roth feature of the 401(k) allows you to make after tax contributions up to the employee contribution limit into your 401(k). This means you pay taxes on those contributions now, but when withdrawn in retirement, those contributions and any potential gains from investing are tax free. Unlike a traditional Roth IRA, there are no income limits with the Roth 401(k) feature. No matter how much you earn, you can make a Roth contribution if you choose. If withdrawals are made prior to attaining the age of 59½ and holding the contributions for 5 years, then any gains can be subject to taxes and penalties – please consult your tax advisor.

Loan Feature:

Spark 401k plans offer the option to add a loan feature, which may provide funds in a pinch.

  • This enables you to take a loan from your 401(k) of up to 50% of your balance with a maximum amount of $50,000.
  • Loan payments are made back into your 401(k) plan.
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