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.

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This question was answered by Denise Appleby
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