A:

It depends.

The SBO-401(k) plan is suitable if the plan covers only the business owners - in this case, the partners in the partnership. If the other employees who are not owners of the business meet the eligibility requirements, a savings incentive match plan for employees of small employers (SIMPLE), simplified employee pension (SEP) or profit-sharing plan may be more suitable for the business.

For example:
Assume that the eligibility requirements are as follows:

  • employees must reach age 21, and
  • employees must perform at least one year of service. For this purpose, the service requirement could be one in which individuals who work fewer than 1,000 hours during a 12-month period will not be considered to have accrued a year of service.

If any one of the employees meets these requirements, the partnership is not eligible to adopt the SBO-401(k). Business owners should be careful about the eligibility requirements they select for the plan, as they do not want to exclude themselves; if the business owners do not meet the age and service requirements, they too would be excluded.

For more information, check out Plans The Small Employer Can Establish, Introduction To SIMPLE 401(k) Plans and Establishing An SEP IRA.

<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /?>

This question was answered by Denise Appleby
(
Contact Denise)

RELATED FAQS

  1. How are joint ventures regulated in the United States?

    Learn how joint ventures are governed in the United States, and discover why tort law is so important for upholding the contracts ...
  2. What types of capital are not considered share capital?

    Find out what types of capital are not considered share capital, including an explanation of the different types of share ...
  3. Can I buy insurance to reduce unlimited liability in a partnership?

    Find out why it is important to safeguard your general partnership in the even that one member becomes disabled, dismembered ...
  4. What are the benefits for a company investing in a greenfield investment?

    Learn about greenfield investments and the primary potential advantages for a company that chooses this method of foreign ...
RELATED TERMS
  1. Qualified Longevity Annuity Contract

    A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity ...
  2. See-Through Trust

    A trust that is treated as the beneficiary of an individual retirement ...
  3. Enterprise Investment Scheme (EIS)

    A UK program that helps smaller, riskier companies to raise capital ...
  4. Maquiladora

    A Spanish term for a factory located near the United States-Mexico ...
  5. Backdoor Roth IRA

    A method that taxpayers can use to place retirement savings in ...
  6. Per Transaction Fees

    An expense a business must pay each time it processes a customer’s ...

You May Also Like

Related Articles
  1. Entrepreneurship

    Netflix's New Strategy: Penetrate Your ...

  2. Entrepreneurship

    Nike and the NBA, a Perfect Duo?

  3. Stock Analysis

    General Electric Returns Vs The Dow ...

  4. Stock Analysis

    Is PayPal Worth More Than eBay?

  5. Retirement

    How to Battle Inflation During Retirement

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!