A Micro(k)® plan is similar to a traditional 401(k) plan. A Micro(k)® allows participants to deposit a portion of their pay into the plan in the form of salary deferrals. These deferrals are deposited on a pre-tax basis and income taxes are only paid when the monies are withdrawn from the plan. In a deferral only Micro(k) plan the maximum annual contribution is $15,500 ($20,500 if the participant is age 50 or older by plan year end).
Micro(k) plans may also allow for employer contributions, such as profit sharing or an employer match on salary deferrals. In a Micro(k) plan with employer contributions, the maximum total annual contribution an individual participant may receive is $45,000 ($50,000 if the participant is age 50 or older by plan year end).
A Micro(k) plan differs from a traditional 401(k) in that it applies solely to businesses without eligible common-law employees. The only participants in a Micro(k) plan may be owners, partners and their spouses. Some of the many benefits include:
- Tax savings
- Low cost administration and setup
- Flexible investment options
- Loans may be taken from plan accounts
- No required contributions
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