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The Uni-K Plan®

The Uni-K Plan® is something completely different - a 401(k) plan designed specifically for owner-only businesses. Thanks to changes in the tax laws, even the smallest business can enjoy all the benefits of a big company 401(k) without the expense and complexity..

 

This material is not intended to replace the advice of a qualified attorney, tax advisor, or insurance agent. Before your client makes any financial commitment regarding the issues discussed here, make sure he or she consults with the appropriate professional advisor.

 

 

Commonly Asked Questions and Answers

Contribution Information

What is the difference between an employer contribution and a salary deferral contribution?

If your business is incorporated, the employer contribution is based on your W-2 income and is contributed by the business. The maximum employer contribution is 25% of pay. It is not subject to federal income tax or Social Security (FICA) taxes. The salary deferral contributions are withheld from your pay pre-tax contributions and are excluded from federal income tax but are subject to FICA. The maximum salary deferral amount for 2017 is 100% of pay up to $18,000 or $24,000 if you are age 50 or older. Your business receives a tax deduction for employer contributions and salary deferral contributions not designated as Roth. Note: Your annual contributions to Uni-K cannot exceed $54,000 or 100% of pay ($60,000 if you are age 50 or older).¹ 

 

If your business is unincorporated, the employer and salary deferral contributions are based on your net earned income. For help in determining your maximum contribution amount, see the Uni-K Calculator. Contributions are not subject to federal income tax but are subject to self-employment taxes (SECA)². You receive a tax deduction for both salary deferral and employer contributions on your Form 1040.

Can I contribute to a Uni-K Plan® for my sideline business if I participate in another employer-sponsored plan?
Yes. You can contribute to a Uni-K Plan®. However, if you make salary deferral contributions to another employer's plan, you must count those amounts along with any deferrals made to your Uni-K when determining the maximum deferrals that may be contributed for the year. This aggregation is not necessary for employer contributions.
Can the employer contribution vary by participant?
No. Each owner and spouse must receive the same percentage-of-pay contribution. So if you give yourself a 25%-of-pay employer contribution, all participants must receive a 25%-of-pay contribution. This rule does not apply to salary deferral contributions. Each participant may choose how much to defer. You may elect to have your salary deferral contributions be made on either a pre-tax or Roth basis.
When must contributions be made in order to take a deduction for a given year?
Employer contributions must be made by the business tax filing deadline plus extensions. Generally, salary deferrals should be deposited by the 15th business day following the month in which they are withheld from pay or business income.

Administrative Issues

What are my administrative responsibilities?
Since your plan covers only owners and spouses, your administrative requirements are minimal. In addition to remitting contributions to the plan, the IRS requires an annual filing of the Form 5500-EZ. Generally, no filing is required for the year until total plan assets exceed $250,000 (or you terminate the plan (regardless of plan size)). Amundi Pioneer offers an optional low cost service to provide you with a signature-ready form. If you prefer to prepare the 5500-EZ yourself, Amundi Pioneer will make available an annual package of filing instructions.

Business Eligibility for Uni-K

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.  See “Control Group” for additional information on "controlled group" situations.
 

Controlled Group
 

A controlled group exists when there is a "parent-subsidiary" group with at least 80% stock ownership. A controlled group also exists when there is a "brother-sister" group in which the same five or fewer people own 80% or more of the stock of each corporation, and together own more than 50% of the value of the voting stock of each corporation.
 

A controlled group can also exist if one or more of the businesses are unincorporated. For example, ownership in a partnership is based on ownership of a capital or profits interest in the partnership. For a sole proprietorship, ownership is attributed 100% to the owner of the business.
 

Here are two additional questions to ask your client. If the answer is "yes" to either it may also result in aggregating the businesses for retirement plan purposes-even if the percentage tests described above are not met.
 

  1. Are services being provided between any of the entities?
  2. Is either entity a Management Corporation?
     

As rules regarding controlled groups and affiliated service organizations are complex; please contact a tax advisor for additional information. This information should not be the sole resource for determining business aggregation for retirement plan purposes.

 

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 the Uni-K Plan® is not an appropriate choice, work with your financial advisor to select a plan that meets your overall business requirements. Amundi 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 Amundi 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 [IRC § 414(n)(5)].

 

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:

 

  1. The plan provides for immediate participation;
  2. Contributions are allocated at a rate of at least 10 percent of compensation;
  3. 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
  4. The plan provides for immediate vesting.

 

[IRC § 414(n)(5); Prop Treas Reg § 1.414(n)-2(f)(1)]

Compensation Information

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.

Participant Loans

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.


[Other reference points are G.C.M. 39753 and Private Letter Ruling 8933018]
Provided that the terms of the loan are satisfied. Failure to repay the loan according to the terms may result in its being treated as a deemed distribution and, if under age 59½, being subject to a 10% federal tax penalty.

SEP Plans and Uni-K Plan®

If a business owner makes a 2017 tax year contribution to a SEP-IRA, can she also fund a Uni-K for 2017? 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 Amundi 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 2017: $54,000, $60,000 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 2017, 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 2017 tax year, even if he makes his 2016 SEP contribution during 2017?

Absolutely. This scenario makes for a great Uni-K prospect. A business owner makes his 2016 SEP contribution (by the business owner's tax filing deadline plus extensions) and establishes a Uni-K for 2017 and then, if he chooses, he can roll over the SEP assets into the Uni-K.

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 2017, 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.

Bankruptcy

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.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.

Fiduciary Bond

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 [DOL Reg § 2510.3-3].

 

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?

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.

 

Therefore, since Uni-K participants are only owners and their spouses, bonding is not required.

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 (2017).


§414(v) Availability of salary deferral catch-up contributions for individuals age 50 or older: $6,000 in 2017.


§415(c) Individual limit increases to 25% of pay, maximum $54,000 to 100% of pay, maximum $60,000 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. Amundi 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 Amundi Pioneer website (click here) and also in the latest version of the Plan Document booklet.

1For 2016, the maximum salary deferral contribution cannot exceed $18,000 ($24,000 if age 50 or older), with the total plan contribution not to exceed $53,000 ($59,000 if age 50 or older).

 

2Deduction for employer-equivalent portion of self-employment tax.

 

This material is not intended to replace the advice of a qualified attorney, tax advisor, or insurance agent. Before you make any financial commitment regarding the issues discussed here, make sure you consult with the appropriate professional advisor.

Before investing, consider the product's investment objectives, risks, charges and expenses. Contact your advisor or Amundi Pioneer for a prospectus or summary prospectus containing this information. Read it carefully. To obtain a free prospectus or summary prospectus and for information on any Pioneer fund, please download it from our web site.