Matching Contributions DO NOT Apply to Solo 401k Plans
First, no, 401k matching contributions don’t apply to self-employed 401k plans (aka Solo 401k plans, Individual 401k plans, Owner-Only 401k plans). Instead, they apply to traditional 401k plans (aka 401k plans offered by full-time employers that also employ non-own common law W-2 employees). A solo 401k is for owner-only businesses with no full-time W-2 employees so it is not treated as a full-time employer 401k plan unde the IRS regulations.
However, there is no need for a solo 401k plan to allow for matching contributions because the business owners can already maximise their overall contribution limit by making both employer profit sharing contributions (aka “non- elective contributions”) as well as employee contributions to the solo 401k plan. What is more, the business owners can solely choose to make either type of these contributions or both without impacting the other contribution type.
What is a Matching Contribution?
Per I.R.C. 401(m)(4)(A) and Treas. Reg. 1.401(m)-1 (a) (2) a matching contribution is a contribution made by the employer based on the amount of employee contribution made by the employee.
In sum, matching contributions don’t apply to 401k plans where the only participants are owners of the business including the business owner’s spouse as is the case with a solo 401k plan. This also probably one of the reasons why contribution discrimination testing does not apply to solo 401k plans like it does to most traditional 401k plans.
