Frequently Asked Questions

Can any business establish a TRA Solo(k) Plan?
The TRA Solo(k) Plan can be established by a business that is 100% owned by an individual (or individual and spouse). The business may be incorporated or unincorporated. Unincorporated businesses include C-corporations, S-corporations and LLCs electing to be taxed as such.

What is the deadline for establishing a TRA Solo(k) Plan?
The deadline for establishing a TRA Solo(k) Plan is the last day of the business’s fiscal year, generally December 31st.

When must salary deferral elections be made?
If the business is unincorporated, a salary deferral election specifying the amount deferred must be completed by December 31st. If the business is incorporated, a salary deferral election specifying the amount intended to be deferred must be completed before the compensation is paid. This means the business owner must have some form of compensation such as regular salary, bonuses or commissions that they have not received prior to signing the salary deferral election form but would be received by the last day of their fiscal year.

Compensation must be received only from the business sponsoring the plan. Do not use compensation from an unrelated employer. For S-corporations, Schedule K-1 dividend distributions cannot be used as compensation.

When must a business owner deposit the salary deferral money into the plan trust?

If the business is unincorporated, the deadline for depositing salary deferrals is generally the due date of the company's tax return (April 15th).

If the business is incorporated, the deadline for depositing salary deferrals is the earliest date on which the deferrals can be segregated from the company's general assets, but no later than the 15th business day of the month following the month in which the salary deferrals are made.

Can a business owner make contributions in addition to their salary deferrals for themselves?
A business owner can make employer profit sharing contributions in addition to their salary deferrals. There is an overall combined limit of $49,000 (in 2010) for salary deferral and profit sharing contributions. If they are eligible to make catch-up contributions, the $46,000 limit is increased by the amount of catch-up contributions.

Employer profit sharing contributions must be deposited into the plan's trust no later than the due date of the company's tax return including extensions.

Are loans permitted?
The TRA Solo(k) Plan allows loans. The maximum loan amount is 1/2 of a participant's account balance or $50,000, whichever is less.

Are takeovers of existing plans permitted?
Yes. The TRA Solo(k) Plan is designed for new and take-over plans.

Are rollovers allowed?
Yes, money may rollover from an IRA, a SEP or a qualified plan such as a Keogh. However, after-tax money may not roll into the TRA Solo(k) Plan.

What kind of investments are allowed in the TRA Solo(k) Plan?
Any investment can be used in the plan including stocks, bonds, CD's and mutual funds. Life insurance is not allowed.

Can an employee be added to the plan?
A spouse may participate in the plan as long as he or she is on the company's payroll and meets the plan's eligibility requirements. Employees other than a spouse are not allowed in the TRA Solo(k) Plan. However, the TRA Solo(k) Plan may be used if a business has employees that can be excluded from the plan.

• Employees who are under 21 years of age.

• Employees who work less than 1,000 hours per year.

The following types of employees are automatically excluded

• Employees who belong to a collectively bargained unit (union).

• Employees who are nonresident aliens and receive no U.S. income.

What happens if a full-time employee is hired other than a spouse?
The plan can be amended to another type of 401(k) plan administered by TRA that is designed for business owners and employees. This plan can be designed with the business's future growth in mind.

Can a TRA Solo(k) and a Defined Benefit plan be maintained together?
Employee salary deferrals may be combined with a Defined Benefit plan. Generally, profit sharing contributions cannot be made to the 401(k) plan when combined with a Defined Benefit plan.

What are the basic compensation and entity type?

Entity Types

The following is a list of basic entity types and the compensation received:

• Corporation (C-corps, professional service corps(PC'S ACP'S)) – Owner(s) and employees receive W-2 income.
• S Corporation – Employees receive W-2 income. Owner(s) receive W-2 income and dividend distributions paid on Form 1099 or Schedule K-1. The income on Form 1099 CANNOT be used as plan compensation.
• Sole Proprietorship (self-employed) – Employees receive W-2 income. Owner ( sole proprietor) receives Schedule C income and we calculate their plan compensation (Earned Income)
• Partnership /LLP - Employees recevie W-2 income. Owners (partners) receive Schedule K-1 income and we calculate their plan compensation (Earned Income).
• Limited Liability Company (LLC) – The owners of an LLC are called members and they can elect to be taxed in a number of ways. By default, a single member LLC is taxed as a sole proprietorship and an LLC with more than one member is taxed as a partnership. However, an LLC can elect to be taxed as a corporation or S corporation. The status of an LLC for tax purposes determines what type of compensation we use for the plan.

Employees receive W-2 income. Owner (member) receives Schedule C income, if the LLC is taxed as a sole proprietorship. Owners (members) receive Schedule K-1 income, if the LLC is taxed as a partnership. Owners (members) receive W-2 income if the LLC is taxed as a corporation, and W-2 plus 1099 income if taxed as an S corporation. For LLCs taxed as sole proprietorships or partnerships we calculate their plan compensation (Earned Income).

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The following table illustrates compensation for owner(s) depending on entity type:

Limited Liability Company – see table above depending on how LLC is taxed.

Employees other than owners are paid W-2 income for all entity types.

Deductions for sole proprietors and partners are limited to Net Profit – ½ SE tax.