FREQUENTLY ASKED QUESTIONS
Frequently Asked Questions
These Frequently Asked Questions (FAQ) will give you the answers to everything you'll need to know about Single(k).
ABOUT SINGLE(k)
- What is a Single(k)?
- How does Single(k) work?
- What are my responsibilities as to setup and ongoing management of a Single(k)?
- Are there any forms that I must file with the IRS?
- Is my Single(k) protected against creditors and/or lawsuits?
DEADLINES
- Is there a deadline to establish a Single(k) plan this year?
- Is there a deadline to fund a Single(k) plan?
GETTING STARTED
- How do I get started?
- How long until my account is set up and ready to be funded?
- If I am a sole proprietor, can I use my Social Security Number to set up the account instead of an Employer Identification Number (EIN)?
- Can I set up automatic payments to my Single(k)?
- Can I set up my Single(k) in the name of a revocable living trust?
ROLLOVERS
- Can I roll my current retirement plan into the Single(k) account?
- How long do I have after my previous 401(k) is terminated to roll my funds into my new Single(k) plan?
- Do I have to sell my stocks in my IRA or previous 401(k) to roll them over to a Single(k)?
ELIGIBILITY
- Can I start a Single(k) if my business has employees?
- Can a spouse or family member who works with me also open a Single(k)?
- Can a business partner who is not related to me take advantage of a Single(k)?
- What happens if I hire one or several full-time employees?
CONTRIBUTIONS
- How much can I save in a Single(k)?
- If two people (business partners, spouses, family members, etc.) are signed up for a Single(k), do both have to contribute?
- Is there a required annual minimum contribution?
- Does the "catch-up" contribution apply to me?
- Are there limits on total profit-sharing contributions if I have more than one qualified retirement account?
INVESTMENTS
ROTH 401(k)
- What is a Roth 401(k) and is it a new type of plan?
- Who should consider saving in a Roth 401(k)?
- How do I decide whether I want to make contributions to a Roth account?
- Can I make both pre-tax traditional contributions and Roth contributions in the same year?
- Are there any limits as to how much I may contribute to my Roth account?
- How do I indicate how much I want to contribute to my Roth account?
- If I start making designated Roth contributions at the beginning of the year and later change my mind and want them treated as pre-tax elective contributions, can they be re-characterized and transferred from my Roth account to my traditional, pre-tax account?
- Do employees have any recordkeeping or reporting obligations?
- Since Roth contributions are already included as part of wages, tips and other compensation on the Form W-2, must the amount contributed as Roth contributions be identified on the Form W-2 as well?
- Can I withdraw from my designated Roth account at any time?
- Can distributions from a Roth account be rolled over?
- Can my plan offer only Roth contributions?
- Does a new account need to be established under my 401(k) plan to receive my Roth contributions?
LOANS
HARDSHIP WITHDRAWALS – RULES AND REGULATIONS
- Can I take a hardship withdrawal from my 401(k) plan?
- What does the IRS consider as a hardship?
- If I have a hardship how much can I withdraw?
- What documentation is required?
- What are the tax consequences of taking a hardship withdrawal?
- Contribution Suspension
TERMINATION
WHO'S BEHIND SINGLE(k)?
ABOUT SINGLE(k)
Single(k) is a flexible, easy and cost-effective way for an owner-only business to maximize its retirement savings.
With tax-deductible, tax-deferred savings of up to $49,000 for 2009 ($54,500 if you are more than 50 years old) a year, Single(k) answers the need like no other similar retirement plan.
Single(k) is for owner-only businesses or those with part-time employees only. This includes sole proprietorships, closely-held family businesses and corporations.
The Single(k) retirement plan combines the benefits of salary deferrals found in 401(k) plans with the flexibility offered by profit-sharing plans. Single(k) accepts annual contributions of both salary deferral and profit-sharing contributions, allowing you to save up to $49,000 in 2009 ($54,500 if you are more than 50 years old), tax-deferred.
What are my responsibilities as to setup and ongoing management of a Single(k)?
You are responsible for completing the account applications to set up your Single(k).
You are also responsible for operating and funding your plan per the plan provisions approved by the IRS under the ‘qualified plan document.’
You are responsible for funding this retirement plan with your contribution and investing those contributions through the investment vehicle of your choice (you can use any brokerage account you would like with Single(k)).
You are also responsible for monitoring the balance in your Single(k) account and notifying our Single(k) Client Relations Group (singlek@theonline401k.com or 877.775.401k, Option #3) when the balance reaches $250,000 at any year-end.
You are required to complete an IRS Form 5500 if your balance reaches $250,000.
If you would like us to complete the form for you, an additional $175 fee will apply. Remember, this form is only required if your Single(k) balance reaches $250,000. You can also have your Certified Public Accountant fill out the form.
Are there any forms that I must file with the IRS?
No annual tax reporting is necessary until your assets reach $250,000. At that point, you must file a Form 5500. We can do this for you for a $175 fee, or you can have your accountant prepare this for you.
However, you must always file a Form 1099-R with the IRS should you take a distribution of your plan assets upon plan termination.
Is my Single(k) protected against creditors and/or lawsuits?
No, in order to receive that type of protection, you must have a plan that covers at least one other employee besides the owner.
DEADLINES
Is there a deadline to establish a Single(k) plan this year?
Our deadline to establish your Single(k) plan is December 31st. This means we need your signed Adoption Agreement (you get this after you go through our online sign up process) postmarked no later then December 31st. But don't delay, you'll be missing out on the opportunity to save more money!
Is there a deadline to fund a Single(k) plan?
For Sole Proprietors:
Employee and profit-sharing contributions must be funded by your tax-filing deadline
For those that are Incorporated:
Employee contributions must be funded within 15 business days after the month in which you pay yourself.
Profit-sharing contributions must be funded by your tax-filing deadline.
GETTING STARTED
Getting started is easy. We have an online sign-up process that’s as easy as purchasing a book online and takes just about the same amount of time.
Step 1: You will need your EIN and credit card to complete the online sign-up process. Instructions for acquiring an EIN are on the first page of the sign-up process and your EIN can be given to you over the phone.
You can find out how to get your EIN here.
Step 3: Go through the online sign-up process. This is a snap!
Once we receive notification that you have signed up for a plan, we will send you an e-mail with a link to the site and login information. Here you can download three packages. Package 1 contains your Plan Adoption Agreement and if you have chosen Schwab as your brokerage, a Schwab Application (see below for funding Roth contributions). We need this returned to us, completed and signed.
Package 2 and 3 are for your reference and do not need to be signed or sent back. Once we receive your completed documents, we will send your account application to Schwab. Schwab will then send you a welcome kit with your new Schwab account number and instructions on how to fund your account within 10–14 business days of our receipt of your documents.
If you select a brokerage that is not Schwab, you will need to contact that brokerage and set up a brokerage account for your business. The name of the account should be [COMPANY NAME or your name (if sole proprietor)] Retirement Trust.
NOTE FOR FUNDING ROTH AFTER-TAX CONTRIBUTIONS: If you plan on funding the Roth after-tax option in your plan, you MUST open up an identical brokerage account and name it (Company Name) Roth Retirement Trust. This will make it easier for you to differentiate between the two accounts, plus you want to make sure that pre-tax and after-tax contributions are not commingled in the same account.
Simply mail us the original copy of your Adoption Agreement and a copy of your brokerage account application(s). You’re done!
How long until my account is set up and ready to be funded?
It takes about 10-15 business days to set up your account after we receive your signed Adoption Agreement (in the package you get after online sign-up) and to be ready for funding.
No, you will need to get an EIN from the IRS.
Click here for instructions on how to do this.
This process will not take you very long; the IRS will give you your EIN over the phone.
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Can I set up automatic payments to my Single(k)?
Check with your financial institution, they most likely will be able to link your banking account to the Single(k).
Can I set up my Single(k) in the name of a revocable living trust?
No, the Single(k) must be set up in your business's name.
ROLLOVERS
Can I roll over my current retirement plan into the Single(k) account?
It depends on the type of plan or account from which you’re intending to roll the funds.
If the funds are in a rollover or conduit IRA, a profit-sharing or 401(k) plan, they most likely can be rolled into the Single(k) as long as you did not make any after-tax contributions to those plans.
If you have a SEP, SIMPLE, Money Purchase Plan or Contributory IRA, please e-mail us at singlek@theonline401k.com or call us at 877.775.401k, Option #3 to discuss what you can do.
If you opted to contribute to the Roth (after-tax) feature, you can roll contributions into or out of a Roth IRA or Roth 401(k). However, it is extremely important that these after-tax contributions be held is a separate brokerage account from your pre-tax or Profit Sharing contributions for proper tax reporting purposes.
Please note that if you have contributed to a SIMPLE plan this year, you can only establish a Single(k) for the next calendar year, as regulations do not allow you to contribute to a SIMPLE and establish a 401(k) in the same year. Don't procrastinate!
You have 60 days from the day you receive your rollover check to roll your funds over.
Do I have to sell my stocks in my IRA or previous 401(k) to roll them over to a Single(k)?
No, your stocks can be transferred “in-kind,” which means that they will be transferred as is to your new plan. For accounting or audit purposes, you will want to keep track of the in-kind market value at the point of your rollover.
ELIGIBILITY
Can I sign up for a Single(k) if my business has employees?
You can sign up for a Single(k) only if all of your employees are working part-time (i.e. fewer than 1,000 hours per year).
If you have full-time employees, visit our site, www.theonline401k.com to explore options for a company with employees; or you can contact us at sales@theonline401k.com or 877.775.401k.
Can a spouse or a family member who works with me participate in a Single(k)?
As long as your spouse or family member is on the payroll or receives income from the business, this person can participate in your Single(k) plan. The maximum amount your spouse or family member can save also depends on his or her income, salary and age. Single(k) can only accommodate two participants (either an owner and spouse/family member, but not three different people).
Please refer to the online contribution calculator for details on how much he or she can save.
Can a business partner who is not related to me take advantage of a Single(k)?
Since Single(k) is for owner-only businesses, partners are eligible to participate. However, Single(k) can only accommodate two participants (either an owner/spouse/family member or two owners/partners). When signing up online, you would still enter the second owner/partner in a “spouse.”
What happens if I hire one or several full-time employees?
Prior to hiring any full-time employees, we recommend that you get in touch with our Single(k) Client Relations Group (singlek@theonline401k.com or 877.775.401k, Option #3) to find out how we can assist you with additional retirement plan services that will accommodate your company's growth. This plan can be designed with future potential growth in mind.
You can also visit www.theonline401k.com to see what we offer for companies with several full-time employees.
Note that once you hire a full-time employee, you will no longer be eligible to maintain a Single(k) – it’s very important that you get in touch with us at that time to discuss your options.
CONTRIBUTIONS
How much can I save in a Single(k)?
You can save up to $49,000 in 2009 (including an additional "catch-up contribution" of $5,500 if you are 50 years or older). The maximum amount you can save depends on your income or profit within any given year.
Use our online contribution calculator to see the details on what how much you can save.
If two people are in a Single(k), do both have to contribute?
No, but if the company makes a profit-sharing contribution to one participant, it must make one to the other as well.
Is there a required annual minimum contribution?
No, there is not. You are not required to contribute to the plan every year.
Does the "catch-up" contribution apply to me?
If you are more than 50 years old you can contribute an additional $5,500 (for 2009) into your Single(k) plan.
For details of how much more you can put away this year, please use our online contribution calculator.
Yes, the combined total of profit-sharing contributions cannot exceed 25% of gross income from a corporation, or 20% of net earned income for sole proprietors/partners.
INVESTMENTS
Single(k) allows you to invest your contributions in any mutual fund, stock or bond available through the brokerage firm of your choice, including the Company Retirement Account (CRA) at Charles Schwab & Co., Inc.
Simply indicate which brokerage firm you would like to work with in the online sign-up process.
ROTH 401(k)
What is a Roth 401(k) and is it a new type of plan?
A Roth 401(k) is a hybrid between a Roth IRA and a 401(k) plan that has been available to employers since January 2006. The plan combines features of Roth IRAs and traditional 401(k) plans, but differs in important aspects.
A Roth 401(k) is similar to a Roth IRA in that it allows after-tax contributions to earn tax-free retirement income. However, a Roth 401(k) allows for sharply higher annual contribution amounts for the employee deferral election than a Roth IRA – up to $16,500 ($22,000 if age 50 or older) in the 2010 tax year versus just $5,000 for a Roth IRA.
Who should consider saving in a Roth 401(k)?
Roth 401(k) is not just for highly paid individuals. This new type of contribution can benefit a wide variety of people in many ways. You may recognize yourself in one of these scenarios:
*Participants of all income levels who are looking for an opportunity to diversify future tax risks
You might want to simply hedge your bet against the unknown and invest contributions in both the Roth 401(k) and the traditional 401(k).
*Participants of all income levels who expect tax rates to rise in the future
If this applies in your case, you may find that you are better off paying taxes now rather than paying higher taxes on your retirement savings in the future.
*Younger workers and lower income taxpayers
If you expect your income to increase over your career, you may find contributing to the Roth feature today to be very advantageous, as you may be in a lower tax bracket than you will be in the future. Also, if you are far away from retirement, you might be interested in Roth 401(k) as you anticipate that your tax-free earnings over time will more than compensate for the taxes paid at the time of the contributions.
*High income earners
If your income exceeds the Roth IRA Adjusted Growth Income (AGI) limits, you may find the opportunity to make Roth contributions to your 401(k) plan attractive.
*Participants seeking to lower taxes on Social Security benefits
Qualified withdrawals are excluded from taxable income when calculating taxes on Social Security benefits. This may be of interest if you are at least five years away from retirement.
*Participants seeking estate planning opportunities
The ability to roll over a Roth 401(k) to a Roth IRA and thereby avoid the legal requirement to take withdrawals at age 70½ may appeal to business owners and other individuals with substantial savings.
Also keep in mind the following limitations:
Roth contributions are irrevocable. Once the money goes into a Roth 401(k) account, it can't be switched over to a regular 401(k).
Participants can roll over their Roth 401(k) contributions to a Roth IRA when they retire or if terminated.
How do I decide whether I want to make contributions to a Roth account?
In trying to decide whether you should set a portion or all of your 401(k) deferrals into a Roth 401(k), you need to take the above scenarios listed in "Who should consider saving in a Roth 401(k)?" into consideration.
We also recommend you run different scenarios using our special Roth calculator, located here. Finally, you may also want to consult your financial advisor to find out if Roth 401(k) will help you further meet your retirement objectives.
**The Online 401(k) cannot advise you on whether or not a Roth 401(k) is appropriate for your personal circumstances.
Can I make both pre-tax traditional contributions and Roth contributions in the same year?
Yes, you can make contributions to both a designated Roth account and a traditional, pre-tax account, such as a 401(k) plan, in the same year in any proportion you choose.
However, the combined amount contributed in any one year is limited to $16,500 for 2009 (plus an additional $5,500 in catch-up contributions if you are older than age 50).
Are there any limits as to how much I may contribute to my Roth account?
Yes, the combined amount contributed to all Roth accounts and traditional, pre-tax accounts in any one year for any individual is limited to $16,500 for 2009 (plus an additional $5,500 in catch-up contributions if you are older than age 50).
How do I indicate how much I want to contribute to my Roth account?
When you sign up for the Roth Single(k), you will open two separate accounts, one will be designated for Roth, the other for normal 401(k) pre-tax contributions. You will need to segregate pre-tax versus after-tax (Roth) account activity when reporting to the government.*
*Since you have already been taxed on Roth contributions deposited in your plan, it is very important that you record these contributions. At year-end and upon distribution, you will want to show the government what contributions have already been taxed and what is income earned on these deposits that are tax deferred until retirement.
No, the election to make designated Roth contributions is irrevocable. Once they are designated as Roth contributions, they cannot later be changed to pre-tax elective contributions.
Do employees have any recordkeeping or reporting obligations?
You should track all deposits made into either your pre-tax, profit-sharing, or after-tax (Roth) accounts for reporting purposes on year-end tax filings and at the point of distribution.*
*Please note: Due to the pre-tax vs. after-tax component of the different source types, pre-tax and employer profit-sharing contributions should be deposited into the same brokerage account and tracked each year. The Roth 401(k) contributions should be held in a separate brokerage account and tracked separately.
However, if you roll over a distribution from a designated Roth account to a Roth IRA, you should keep track of the amount rolled over in accordance with the instructions to Form 8606, "Nondeductible IRAs."
If you receive a distribution from your Single(k) account, you may be responsible for filing a Form 1099-R to report the distribution to the government. When you request the distribution from your investment company, confirm whether they are going to file the 1099-R or not.
Yes, contributions to a Roth account must also be separately reported on Form W-2, "Wage and Tax Statement."
Can I withdraw from my designated Roth account at any time?
No, because of the complicated nature of the after-tax contribution and pre-tax earnings, your plan does not allow in-service withdrawals from your Roth account.
Can distributions from a Roth account be rolled over?
Yes, you can roll your Roth 401(k) account over, but only to either a similarly designated Roth 401(k) account of another employer, or to your own Roth IRA.
If you do not roll your Roth account over as described above, the previously-untaxed earnings will be treated as an early distribution from a qualified plan (and consequently subject to the taxes and penalties for any such early distribution) UNLESS you've had this Roth account for more than five years.
Can my plan offer only Roth contributions?
No, in order to provide for Roth contributions, a 401(k) plan must also offer pre-tax elective contributions.
Does a new account need to be established under my 401(k) plan to receive my Roth contributions?
Yes. If you are opening a new Single(k) with us, that will be taken care of automatically for you in your package. You will open two separate accounts with the investment provider of your choice, one for Roth and one for regular pre-tax contributions.
If you already have a Single(k) plan with us, you will need to open up an additional account with your investment provider for your Roth contributions.
To find out how to set up a Roth account with us if you are already a Single(k) accountholder, please click here.
To find out more about managing the Roth feature in your plan, please click here.
LOANS
Can I borrow against the Single(k) assets?
Yes. Single(k) has a loan provision.
You have the ability to borrow up to 50% of the vested account balance from your Single(k) but no more than $50,000 (minimum of $1,000).
For example, John has a vested account balance of $150,000. Fifty percent of his account is $75,000, however the maximum loan that can be taken from a plan is $50,000.
The interest to the qualified retirement plan is paid back to your Single(k) account and must be made at least quarterly. There is a five-year term for a general loan; a 30-year term for a mortgage loan. The loan-processing fee is $90 per loan. The interest rate used is prime plus 2%.
It is recommended that when funding your approved loan, you ONLY take the proceeds from either the pre-tax or Roth (after-tax) account. That way you are able to track the distribution and repayment amounts more easily when reporting account activity to the government.
Please note: you will be responsible for tracking all distributions and payments made back to the loan on either a Pre-tax or Roth (after-tax) basis. Please consult your tax advisor for more information.
How long does it take to process the loan?
It takes about two to three business weeks to process the loan.
HARDSHIP WITHDRAWALS – RULES AND REGULATIONS
Can I take a hardship withdrawal from my 401(k) plan?
The Single(k) has a provision for hardship withdrawals provided that certain criteria are met.
In order to comply with IRS regulations, an owner is required to take all possible distributions from the plan, including any rollover contributions and the maximum loan amount available, prior to requesting a hardship withdrawal.
What does the IRS consider as a hardship?
The following are considered “hardships” by the IRS:
- Medical expenses described under Code §213(d) incurred or anticipated to be incurred by the employee, the employee’s spouse or dependent. This is for all deductible medical expenses – not just the amounts that actually exceed 7.5% of adjusted gross income.
- Purchase (excluding mortgage payments) of a principal residence of the employee.
- Tuition and related educational fees for the next 12 months for post-secondary education for the employee, spouse, children or dependents.
- Payment to prevent eviction from the employee’s primary residence or foreclosure on the mortgage on the employee’s primary residence.
- Funeral expenses of a parent, spouse, child or dependent.
- Certain expenses related to the repair of damage to the participant’s principal residence that would qualify for a casualty deduction on the individual’s Federal Income Tax Return under Section 165 of the Internal Revenue Code. For example, this would include expenses incurred to repair property damage that resulted from a natural disaster, flood damage or other loss. (The amount that may be included in the hardship withdrawal would be determined without regard to whether the loss exceeds 10% of adjusted gross income.)
If I have a hardship how much can I withdraw?
The dollar amount requested for withdrawal is limited to the amount documented to meet the immediate hardship, including taxes and penalties.
The IRS also restricts the types of money you can withdraw from your Single(k):
- You may withdraw pre-tax deferrals.
- You may not withdraw earnings on pre-tax deferrals.
- You may withdraw profit-sharing contributions and the associated earnings.
- You may not withdraw Roth contributions and any associated earnings.
What documentation is required?
You must compile documentation in order to support the need for a hardship withdrawal from the retirement plan. Below is a checklist of what you must compile prior to taking a hardship withdrawal.
| Reason | Required Documentation |
| Medical/Dental Expenses |
|
| Home Purchase |
|
| Post-Secondary Education |
|
| Foreclosure/Eviction |
|
| Funeral Expenses |
|
| Home Repair |
|
What are the tax consequences of taking a hardship withdrawal?
By taking a hardship withdrawal you will be incurring a taxable event, meaning that the money you take from the plan is taxable in the year in which it is taken. Also if you are below the age of 59 1/2 you will also be subject to a 10% early withdrawal penalty.
Once you receive a hardship distribution, you cannot contribute to the retirement plan for six (6) months, this is called a "contribution suspension."
Failure to suspend contributions will result in the contributions being forfeited and re-categorized as ordinary income.
TERMINATIONS
What if I want to terminate my account?
Per our Agreement for Services, page 3 (part of your sign-up package), we require a 60-day written termination notice before your next annual billing. Without such notice, you will be subject to a $60 termination fee. If you wish to terminate your account, we will send you a termination e-mail.
If you are terminating without a 60-day notice and you have already been charged your annual fee, your card will be credited back the annual fee minus the $60 termination fee.
Note: It is important that we are notified if you wish to terminate your government qualified plan. This will allow us to cancel your annual billing. Also, the government mandates that all distributions from a trust are reported on a Form 1099R and that a final Form 5500 is prepared.
WHO'S BEHIND SINGLE(k)?
Who is The Online 401(k), and how long has it offered Single(k)?
The Online 401(k) is the company behind Single(k). We are a Web-based retirement company that provides small and growing businesses with affordable, quality retirement plans.
The Online 401(k) is six years old, with more than 3,500 clients in all 50 states. Single(k) has been featured in various publications, including Kiplinger’s, Newsweek and The Motley Fool.
Visit Press or About The Online 401(k) to learn more about us.