Individual K Changes Due to Employee

Submitted by Todd Martin on Tue, 2016-07-19 23:50

I have a client who has an Individual K plan that she established in 1/1/2014 for her company and has been the only participant. On August 1, 2016, she will bring on her first employee. Based upon the Individual K provisions, an employee will need to complete 1 year of service before being able to participate in the company retirement plan. Can she as the owner, since the employee will not be eligible until 8/1/2017, make contributions and profit sharing contributions to her Individual K plan for the 2016 plan year? Or because she will have an employee in 2016, does she need to not make any contributions into her Individual K plan for 2016 and start a traditional or Safe Harbor 401k for 2016 even though the employee is NOT eligible until 2017? Thank you in advance for your assistance.



Submitted by Alan - IRA critic on Wed, 2016-07-20 00:37

Apparently, the solo K can be continued until the employee becomes eligible to enter the plan. From DWC Erisa Consultants:

When does a solok plan lose its Title I exemption?When you hire a person that becomes eligible for the plan. We typically write the plan document with an initial amnesty date and then create the eligibility criteria as age 21, one year and 1,000 hours. The plan retains its exemption until the employee enters the plan! 

Submitted by Todd Martin on Wed, 2016-07-20 01:04

That is good news!  Thank you as always alan for your expertise.  I appreciate the assistance.

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