INDEPENDENT CONTRACTORS
Tidepool is optimized to serve multiple groups of Independent Contractors under the Secure 1.0 Act (passed Dec. 17, 2019) and the Secure 2.0 Act (passed Dec. 29, 2022). These new legislative enactments provide numerous incentives for self-employed individuals and owner-employees to benefit from a pooled 401(k) plan. Some of these are as follows:
Tidepool sponsors the Pooled Plan and provides all fiduciary and administrative functions to the Plan.
401(k) contributions from all Independent Contractors are pooled, giving a massive investing advantage over a single-employee investment.
Credits for small-employer plan startup costs are available up to $5,000.
Independent Contractors can take control of retirement future ahead of expected social security disruption.
Up to $22,500 per year can be contributed to a 401(k) plan–even more if the participant is over 50 years old ($30,000). This helps high-earners strategically defer taxes and protect their money.
Participants who are age 50 or older can make additional “catch-up” contributions, up to $7,500 (increased to $10,000 after December 31, 2024.)
A Contractors contributions are bi-directionally portable, both from an existing plan into the Tidepool Independent Contractor 401(k) Plan; and out of the Tidepool Plan to a different plan.
HOW IT WORKS
Each Independent Contractor authorizes the Direct Selling Company to act on his/her behalf in relation to the Tidepool Independent Contractor 401(k) Plan specifically designed for each Direct Selling Company.
The Direct Selling Company manages two administrative functions on a monthly basis: (1) updates the Contractor’s active membership status with the Direct Selling Company; and (2) withholds contributions in the specified amount and forwardsd contributions to Tidepool’s trustee, Matrix Trust Company. Both of these functions are typically automated through back end API interfaces set up by Tidepool for the Direct Selling Company.
Tidepool’s plan administrator, Vestwell, sets up an individual account for each Independent Contractor that looks something like this.
All 401(k) administrative and investing functions proceed as set out in the Plan prepared for each Direct Selling Company, at the direction of Tidepool, while performing in all respects as a standard 401(k) Plan.
FEDERAL LAW AUTHORIZES POOLED 401(k) PLANS FOR
INDEPENDENT CONTRACTORS
The Internal Revenue Code §401(c) specifically accounts for self-employed individuals and owner-employees; recognizing that contributions to a 401(k) plan can be made by the self-employed person, both as the employer and as employee.
Also, under ERISA §1002(5), the Direct Selling Company may act “indirectly in the interest of” the self-employed owner in sponsoring the Independent Contractor Plan, facilitating contributions to the Plan and making matching contributions to each Independent Contractor. Contributions are transacted via the Direct Selling Company’s technology system used to calculate and pay Independent Contractor commissions through back-end API connectivity.
In this way, self-employed Independent Contractors may take full advantage of a defined contribution pension plan under federal law building for retirement and guarding against the day of Social Security disruptions.
IRC §401(c)(B)(3): Owner-Employee
“The term ‘owner-employee’ means an employee who–
(A) owns the entire interest in an unincorporated trade or business, or
(B) in the case of a partnership [or LLC] is a partner who owns more than 10%of either the capital interest or the profits interest of such business.”
ERISA §1002(5): Employer
“The term ’employer’ means any person acting…indirectly in the interest of an employer in relation to an employee benefit plan.”
29 CFR 2910.3-55: Dual Treatment
“(d) Dual treatment of working owners as employers and employees.
(1) A working owner of a trade or business without common law employees may qualify as both an employer and as an employee of the trade or business.”
