An Entrepreneur with ZERO Employees? Yes, to a Big Boy 401(k).

Ever wonder if an entrepreneur with no employees can start a 401(k) — just like the “Big Boys?” Meaning, do you have to employees to start a retirement plan? Yes, an entrepreneur or small business person with no employees can, in fact, have a 401(k) plan just like Boeing’s plan, Google’s plan, or Microsoft’s plan. The difference, there is only one participant, the owner.

The “one-participant 401(k) plan” is not a new type of plan. It is a traditional 401(k) plan covering only one employee. The plans have the same rules and requirements as any other 401(k) plan. The surging interest in these plans is a result of the EGTRRA tax law change that became effective back in 2002. The law changed how salary deferral contributions are treated when calculating the maximum deduction limits for contributions to a 401(k) plan. This change created an opportunity for some people to put away additional amounts toward their retirement.

The marketing for this type of plan is aimed at business owners who do not have any employees, other than themselves and perhaps their spouse. Many of the advantages stressed by marketers of these plans vanish if the employer expands the business and hires more employees. No matter what the plan is called, it must meet the rules of the Internal Revenue Code. If employees are hired and they meet the eligibility requirements of the plan and the Code, they must be included.