Definition  The law refers to qualified retirement plans for owner-only businesses as "one-participant" plans.  A one-participant plan is defined as a plan which covers:

• The 100% owner of the business only (or the business owner and his/her spouse)

• One or more partners in a business partnership (or partner(s) and spouse(s)) in a business partnership

This definition applies to all types of business entities including: C or S Corporations, Sole Proprietorships, Partnerships, LLCs, or LLPs.

Qualified retirement plans for owner-only businesses were historically available in the form of:

• Stand alone profit sharing plans permitting discretionary contributions from 0 to 15% of compensation;

• Stand alone money purchase pension plans requiring fixed contributions from 1 to 25% of compensation;

• Paired money purchase pension and profit sharing plans requiring a fixed contribution of 10% of compensation and permitting discretionary contributions from 0 to 15% of compensation; and

• Stand alone defined benefit pension plans requiring annual contributions in an amount necessary to satisfy the plan's funding requirement as determined by an enrolled actuary.

However, starting in 2002, the EGTRRA law changed the existing pension rules to:

• Effectively eliminate the need for a money purchase pension plan by increasing the profit sharing employer deduction limit from 15 to 25%;

• Increase the individual contribution limit from the lesser of 25% of compensation or $35,000 to the lesser of 100% of compensation or $40,000 (subject to COLA; $49,000 in ‘09);

• Increase the individual benefit limit from 100% of highest 3-year average compensation limited $140,000 at SSRA (Social Security Retirement Age) to 100% of highest 3-year average compensation limited $160,000 at Normal Retirement Age 62 (subject to COLA; $195,000 in ‘09)

• Increase the individual compensation limit from $170,000 to $200,000 (subject to COLA; $245,000 in ‘09);

• Increase the individual contribution limit from $10,500 to $11,000 which applies toward $40,000 individual contribution limit but no longer applies toward 25% employer deduction limit (subject to COLA; $16,500 in ‘09); and

• Create a new $1,000 401(k) "catch-up" contribution limit (for individuals who are age 50 or will become age 500 at anytime during the calendar year) which is in addition to the $40,000 individual contribution limit (subject to COLA; $5,500 in ‘09).

One-participant 401(k) Plan  These new rules gave birth to a new plan type, the one-participant (or owner-only) 401(k) plan, and the combination of the one-participant 401(k) plan with a defined benefit pension plan.

In the financial services marketplace, one-participant or owner-only 401(k) plans are referred to by many names.  However, whether the plan is called a Solo(k), Individual(k), Single(k), Uni(k) or as we call it, the Mini(k) plan, all of these "401(k) Plans" are qualified retirement plans (Profit Sharing Plans with a 401(k) feature).

This means that the plan must comply with strict governmental guidelines to retain the plan's "qualified" status.  And, believe it or not, these governmental guidelines are nearly as complex for a plan that provides benefits to an owner-only business as those a company like Microsoft must follow.   Failure to follow these rules may subject the plan to "disqualification."   Disqualification means that all plan contributions and income on the plan investments may be retroactively taxable, and you loose the ability to rollover the plan assets to an IRA at such time that you retire.