Who should consider the Uni-K Plan?
Any business that employs only owners and their spouses-including C corporations, S corporations, partnerships and sole proprietors-is a candidate. Uni-K is not suitable for businesses with employees, or those that may be contemplating expansion in the near future.
Can a business with multiple partners establish a Uni-K Plan?
It depends. As long as each partner owns more than 5% of the business, the business would qualify for Uni-K since all partners (and their spouses) would be considered "highly compensated employees", thereby avoiding non-discrimination tests and other issues that affect plans with rank and file employees.
What if I own multiple businesses, do I need to consider all employees in the Uni-K?
If you are the sole owner of more than one business, you will need to consider all of your employees when setting up a Uni-K Plan. You may select to exclude employees who work less than 1,000 hours per year on the Uni-K Plan Adoption Agreement. If you have employees that work more than 1,000 hours per year you should consider another plan for your business, as Uni-K is not an appropriate solution.
Depending on your ownership interest or affiliations with multiple businesses, the businesses may be considered under common control as defined by the IRS. This means that all employees must be considered when setting up a retirement plan. Click here for additional information on "controlled group" situations.
What happens if my business grows and I hire employees?
The Uni-K Plan is designed for business owners and their spouses. Contributions are 100% vested immediately and if you give yourself the maximum employer contribution, you are required to contribute the maximum for your employees. Also, a number of additional IRS requirements must be met if your plan includes employees. If you currently have employees or anticipate adding employees soon, work with your financial advisor to select a plan that meets your overall business requirements. Pioneer offers a broad array of retirement plans designed for businesses with employees, including age-based plans and 401(k) solutions for any size business.
Setting Up a Uni-K Plan
If I start my business during the year, can I set up my plan immediately?
Yes. You can start contributing immediately. The Uni-K Plan must be established no later than the last day of the businesses tax year.
Can I change to a Uni-K Plan if I already sponsor a plan for my business?
Yes. Uni-K can accept transfers or rollovers from your current plan, but the steps you need to take depend on the type of plan you own and whether you have funded it for the current tax year. Generally, profit sharing plan owners can amend their plans into a Uni-K while money purchase plan owners must terminate their plans first. SIMPLE IRA owners who have made contributions for the current year cannot start up a Uni-K until the following year. And SEP owners may be able to establish a Uni-K for the current year, depending on the type of SEP you have adopted. Check with your advisor or call Pioneer for more information.
Do I need to include part-time employees in the plan?
You may exclude any employee who works fewer than 1,000 hours per year.
Do I have to make contributions into the plan each year?
No. You have the flexibility to decide from year to year how much to contribute -- up to the legal limits.
Can I establish a Uni-K Plan if I have leased employees?
Leased employees may be excluded if they work for the business less than 1,000 hours per year. Full-time leased employees may also be excluded if they are covered by a safe harbor plan of the leasing organization and if they do not constitute more than 20 percent of the business owner's non-highly compensated employee (NHCE) workforce .
Note the requirement-"that they do not constitute more than 20 percent of the recipient's non-highly compensated workforce". If the leased employees do not constitute more than 20 percent of the recipient's NHCE workforce this means that there are other NHCEs to consider and therefore Uni-K would not be an appropriate retirement plan.
What is a "safe harbor plan" as mentioned in the previous question?
Generally, a safe harbor plan is a money purchase plan sponsored by the leasing organization that meets all of the following requirements:
- The plan provides for immediate participation;
- Contributions are allocated at a rate of at least 10 percent of compensation;
- Contributions are given to an individual whether or not the individual is employed by the leasing organization on the last day of the plan year and regardless of the number of hours of service; and
- The plan provides for immediate vesting.
What is considered income for purposes of making contributions to a Uni-K Plan?
Only income that is considered "earned" through employment can be counted as compensation for contribution purposes. You cannot make a contribution based on passive income. Let the Uni-K Plan Calculator figure out your contribution amount once you've determined the eligible compensation amount.
Is the interest from a participant loan tax deductible?
Interest is not deductible for participant loans to "key employees" which include owners and their spouses. Section 72(p)(3)(A) of the Code disallows a deduction for interest paid on plan loans to key employees.
SEP Plans and Uni-K Plan
If a business owner makes a 2016 tax year contribution to a SEP-IRA, can she also fund a Uni-K for 2016? And if so, what is the maximum contribution into Uni-K?
The answer depends on the type of SEP the business owner has adopted. For example, if the SEP is a "prototype" plan like the Pioneer SEP, she may fund a Uni-K and a SEP in the same tax year. Keep in mind that the aggregation rules don't permit her to contribute two plans than she is able to fund into the Uni-K Plan alone. So if she funds a 15% of pay employer contribution into the SEP, she may also fund an additional 10% of pay employer contribution plus salary deferral contributions into the Uni-K (Maximum contribution for 2016: $53,000, $59,000 if age 50 or older.).
If the business owner had adopted a model SEP (e.g. IRS Form 5305-SEP), she would not be able to fund the Uni-K for 2016, as this plan type does not permit funding to another plan in the same tax year. And of course, once the business owner is eligible to establish a Uni-K, she can roll the SEP into it and consolidate assets.
Can a business owner set up a Uni-K for the 2016 tax year, even if he makes his 2015 SEP contribution during 2016?
Absolutely. This scenario makes for a great Uni-K prospect. A business owner makes his 2015 SEP contribution (by the business owner's tax filing deadline plus extensions) and establishes a Uni-K for 2016 and then, if he chooses, he can roll over the SEP assets into the Uni-K.
Are a business owner's Uni-K assets protected from creditors if he declares bankruptcy?
It depends. Qualified plans-including 401(k), profit sharing and money purchase plans--that cover employees are subject to ERISA, which protects plan assets from creditors.
If a qualified plan covers only participants who are owners (and their spouses) the plan is not given ERISA protection. Instead the plan would be subject to state law. In many cases the courts have concluded that plan assets are exempt from creditors provided that the IRS has not disqualified the plan. And, the courts have taken it one step further and concluded that they do not have to step into the shoes of the IRS to make this determination.
Is a fiduciary bond required for Uni-K?
If a qualified plan covers only the owner (i.e., sole proprietor), or the owner and the owner's spouse, the qualified retirement plan is not subject to the bonding requirements. Furthermore, if a partnership's qualified retirement plan covers only partners (or partners and their spouses), the qualified retirement plan is not subject to the bonding requirements .
Therefore, since Uni-K participants are only owners and their spouses, bonding is not required.
New Plan Tax Credit
Can a business owner who adopts a Uni-K take advantage of the new plan tax credit created by the Economic Growth And Tax Relief Reconciliation Act of 2001 (EGTRRA)?
The maximum credit is up to 50% of the first $1,000 in plan expenses. So the maximum credit would be $500 per year for the first three years.
It is available to businesses that have not maintained any retirement plan during the past 3 years and have no more than 100 employees who received $5,000 or more in compensation during the preceding year. The other key eligibility feature is that the plan must cover at least one non-highly compensated employee.
Uni-K participants consist of only owners and their spouses who are considered highly compensated employees, so the business would not qualify for the credit.
Questions about the Uni-K Calculator and Sales Brochure
I'm looking at the example on the Uni-K self-employed contribution guide and comparing it to the maximum contribution amounts in the Uni-K Sales Brochure. Why don't the figures match up for an individual who makes $125,000?
You are looking at two different scenarios. The sales brochure defines the $125,000 unincorporated income as "net business profit minus one-half of self-employment tax". The worksheet shows the $125,000 as the net profit before one-half of self-employment (SECA) tax is deducted.
We presented it this way to avoid showing such awkward numbers as $116,705-which is $125,000 of net profit adjusted for the deduction of one-half of SECA tax.
Uni-K Key Facts
What are some of the key Internal Revenue Code (IRC) sections that make-up Uni-K?
§402(g) Increased the salary deferral limit to $18,000 (2016).
§414(v) Availability of salary deferral catch-up contributions for individuals age 50 or older: $6,000 in 2016.
§415(c) Individual limit increases to 25% of pay, maximum $53,000 to 100% of pay, maximum $59,000 for individuals age 50 or older (2016).
§404(a) Increased the employer deduction limit from 15% to 25% of pay. And salary deferrals no longer count towards this limit (but may be deductible). This is a very important enhancement!
Is Uni-K really a 401(k) plan?
Uni-K is a bona fide 401(k) plan; technically speaking it is a profit sharing plan with a 401(k) feature. Pioneer has received its "opinion" letter from the IRS that indicates they have approved the plan document. You can find a copy of it on the Pioneer website (click here) and also in the latest version of the Plan Document booklet.
Before investing, consider the product’s investment objectives, risks, charges and expenses. Contact your advisor or Pioneer Investments for a prospectus or summary prospectus containing this information. Read it carefully.