Friday, March 10, 2023
HomeLife InsuranceSafe Act 2.0 Retains Door Open for Larger Limits in Solo 401(okay)s

Safe Act 2.0 Retains Door Open for Larger Limits in Solo 401(okay)s


What You Must Know

  • The Safe 2.0 Act fastened a difficulty created by the unique Safe Act.
  • This new rule is efficient for plan years starting after Dec. 29, 2022.
  • It’s essential for purchasers to know the added worth for first-year contributions created beneath the Safe 2.0 Act.

Each the Setting Each Neighborhood Up for Retirement Enhancement (Safe) Act and the Safe 2.0 Act made beneficial adjustments to make saving for retirement simpler and extra engaging for taxpayers. Safe Act 2.0 additionally contained some provisions designed to “repair” points created by the unique Safe Act.

A type of points was a brand new rule that allowed enterprise homeowners to determine solo 401(okay)s retroactively — however solely permitted employer contributions after the top of the calendar 12 months. This limitation made it tough for small-business homeowners who had been interested in the construction, but wouldn’t make sure about their earnings for the plan 12 months till early within the subsequent 12 months.

Safe Act 2.0 fastened this “glitch” to permit retroactive worker deferrals. enterprise homeowners shouldn’t wait to behave and needs to be suggested in regards to the worth of those retirement financial savings accounts right now.

Solo 401(okay)s: The Fundamentals

A solo 401(okay) is a 401(okay) plan that covers solely the enterprise proprietor and their partner. In most methods, the solo 401(okay) operates in the identical method as a standard 401(okay) — that means that contributions are made on a pre-tax foundation and topic to extraordinary revenue taxes when withdrawn throughout retirement.

One key benefit of a solo 401(okay) plan is that the employer-participant just isn’t required to carry out nondiscrimination testing as a result of there are not any workers to think about, whether or not non-highly compensated or in any other case. Submitting necessities are additionally minimal — if the plan’s property are a minimum of $250,000 at year-end, the plan is required to file an annual report on Type 5500-EZ.

Solo 401(okay)s additionally permit the proprietor to make bigger contributions every year. For 2022, the owner-employee can contribute as much as $20,500 (with a $6,500 catch-up contribution, for a complete restrict of $27,000 if the participant is 50 or older) in pre-tax {dollars} per 12 months as an worker. The contribution restrict will increase to $22,500 with a $7,500 catch-up contribution restrict for 2023.

Nevertheless, the enterprise proprietor can be permitted to contribute to the solo 401(okay) plan as employer (for a complete employer-employee contribution restrict of $61,000 in 2022 (or $67,500 for these ages 50 and older). The restrict will increase to $66,000 in 2023 with a $7,500 catch-up contribution restrict.

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