The new E(k) Plan from Entrust

Welcome to the E-"K" Plan

The E-"(k)" Plan: Self-Directed 401(k) for Business owners with no employees

Entrust has designed a self-directed retirement plan for businesses which employ owners, their spouses and partners only. The E-(k) Plan, is made available as a result of tax law changes effective in 2002.

The E-(k) Plan is appropriate for owner only, plus spouse or partners, who wish to self-direct their plan investments. Business included are corporations, partnerships and sole proprietorships. It is not appropriate for businesses with common law employees.

E-"(k)" Plan Features:

Plan Establishment	Any business that employs owners, spouses and partners (includes corporations, partnerships, sole proprietors, and non-profit entities), without common law employees.
Trustee and Plan Administrator	Business Owner, Spouse or Partner or any combination, or any other designated third party.
Set-Up Deadline	Business tax year-end.
Eligibility	Age 18 though 21 - up to 2 year entry waiting period.
Salary Deferral Contributions	Up to $11,000 (not to exceed 100% of pay No more than $200,000 of pay can be taken into account.). Total salary deferral and employer contributions maximum of $40,000.
Salary Deferral Contributions	Individuals age 50 or older may contribute an additional $1,000 in salary deferrals beyond the $11,000 which does not count towards the maximum total contribution limit of $40,000.
Employer Contributions	Up to 25% of pay, (20% for self-employed), maximum $40,000. Salary deferral contributions are also counted towards the $40,000 limit.)
Rollovers	Rollovers and transfers allowed from traditional IRA, SEP, Qualified Plans or Keoghs (Profit Sharing, Money Purchase Pension, Defined Benefit), 401(k), 403(b) and governmental 457 plans. SIMPLE IRAs are eligible for rollover after two year holding period is met.
Loans	Available to all participants, including unincorporated business owners.
Withdrawals	In service withdrawals permitted subject to 2 year holding or "bake" period. Other withdrawals limited to certain events such as retirement, hardships or death.
Government Reporting	IRS 5500-EZ preparation available as an optional service through a third party accounting firm for $200 per year.
Fees	$50 setup. $300 per year for Plan Document. Self-Directed Asset Recordkeeping: ½% of asset value up to $100,000 .25% additional above $100,000
Investment Choices	Self-directed. Must comply with Section 4975 of the IRC ( Prohibited Transaction Rules )
Vesting	Four choices, ranging from immediate 100 % to 5 years for 401(k) portion

Retirement plans generally fall into two types:

plans that are primarily funded by employer contributions and
those, including 401(k)s, that involve pay deferrals by employees.

The distinction is often insignificant for the self-employed, because they are in essence both employer and employee. In some plans, including 401(k)s, business owners can make both employer and employee contributions.
Under current law (2001), there is generally a 15%-of-pay cap on the combined sum that employers and employees can contribute annually to 401(k) plans on a tax-favored basis, as much as $170,000 in pay. That 15% cap will rise to 25% of $200,000 in pay next year.

From 2002 until 2012 employee deferrals won't be counted toward that 25%-of-pay limit, making it possible for owner only businesses to make a large employer contribution and then also make the maximum $11,000-a-person deferral in 2002. The 2001 tax law changes also allows people 50 or older to make additional "catch-up" contributions in 2002 of $1,000 a year to a 401(k) plan.

For sole proprietorships, the percentage-of-pay limits apply to compensation after plan contributions are subtracted (and also after deducting one-half of self-employment tax). Which makes the 15% and 25% figures actually 13.0435% and 20% of earnings respectively before those contributions. Also, the combined employer and employee contributions are subject to a flat-dollar cap -- $40,000 a person in 2002, after rising from $35,000 this year.

The one-person 401(k) offers the biggest potential benefit for one-person businesses earning between $50,000 and $160,000.

You, as the business owner, must also consider that if you are also a corporate employee already participating in another 401(k) plan: An individual's deferrals in both plans together can't exceed the $11,000-a-person cap in 2002.

Example:
A person earning $100,000 in a one-person unincorporated business, will be able to put $28,000 or more into a 401(k) in 2002, thousands of dollars higher than in most other types of tax-deferred plans.

¹ People age 50 and older can make additional "catch-up" contributions of $500 for a Simple plan and $1000 for a 401 (k)

² Net Profit Minus one-half of self employment tax.
Contributions for Incorporated business may be higher

NOTE: Simple is Saving Incentives Match Plan for Employees
SEP is Simplified Employee Pension Plan

The new E(k) Plan Contribution table

Click here for books and CDs

Open an Account: Click to select an office from our contact directory - then select "Forms for Opening an Account"

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