13. Definition of self-employed individual

Statement of Requirement: Code §§ 401(b)(2) and 401(c)(1)

Sample Plan Language:

Self-employed individual means an individual who has earned income for the taxable year from the trade or business for which the plan is established; also, an individual who would have had earned income but for the fact that the trade or business had no net profits for the taxable year.

(Note to reviewer: This definition is not required if the plan is a Nonstandardized plan and precludes participation by self-employed individuals.)

(Note to reviewer: For plan years beginning after December 29, 2022, Section 317 of the SECURE 2.0 Act of 2022 extends the deadline for a sole proprietor with no other employees to make elective deferrals to a new § 401(k) plan to the individual’s tax return filing date (without extensions) following the end of the first plan year. Thus, a calendar year sole proprietor will have until April 15 to decide to adopt a § 401(k) plan and make contributions retroactive to the preceding year. See CODA

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LRMs I and III.)