Individual 401(k) Plan

The Individual 401(k) plan was created specifically for the small, owner-only business. The business owner has the ability to contribute considerably greater contributions to this type of plan than other retirement plan options available. The contributions are tax deductible to the business and employee contributions are excluded from income for Federal Income Tax purposes.

Plan Eligibility

• Sole proprietorships, partnerships, limited liability corporations (LLCs), or incorporated businesses, including subchapter S corporations, may establish an Individual(k) plan.
• Designed for businesses with no common-law employees or only employees that can be excluded, including any employee who:
  • is under 21 years old
  • has worked less than 1,000 hours in the year beginning with the date of hire.
• Union employees and non-resident aliens who have no U.S source of income may generally be excluded from coverage

Note: An employer can establish less restrictive eligibility requirements than the ones listed above, but not more restrictive ones.

Vesting

Vesting is the participant's ownership in the value of his/her retirement account or benefit. All contributions are 100% vested immediately.

Tax Advantages

• Employer contributions are tax deductible for the employer - up to 25% of compensation.
• Elective deferrals can be excluded from the employee's income for Federal Income Tax purposes.
• Tax-deferred growth potential is possible -- any investment earnings grow tax-deferred until withdrawn.

Plan Deadline

The deadline to establish an Individual(k) plan is the last day of the fiscal year of the business. For calendar year businesses, this deadline is December 31.

Contribution Flexibility

Contributions are flexible and no annual contribution is required.

• Employer discretionary contributions can vary each year, from 0-25% of compensation.
• Employee salary deferrals are elected by the business owner

Investment Options

• State Farm Mutual Funds®

Key Advantages

Plan Compliance

• Non-discrimination testing is not required.
  

Attractive benefits for the business owner

• An Individual(k) plan can assist in providing retirement income for the employer/owner.
• The employer/owner may be able to contribute more to an Individual(k) than other types of retirement plans.
• Individual(k) plan offers lower administration fees than a Traditional or Safe Harbor 401(k) or profit sharing plan.
• If employed and compensated by the business, the business owner's spouse may also participate in the Individual(k).
• Designated Roth contributions are allowed in an Individual(k).

Early Withdrawal Penalty

Generally, a 10% tax penalty is applicable to distributions for participants under age 59 1/2. Participants may have to pay Federal Income Tax on the distributions, as well.

Reporting and Disclosure Requirements

No annual reporting required until assets exceed $100,000. Form 5500-EZ is completed annually once assets reach this threshold.

For detailed information on qualified retirement plans, please contact your State Farm agent.

View additional information on Individual(k) plans.

State Farm VP Management Corp Risk/Important Disclosures. State Farm Mutual Funds Prospectus. The State Farm College Savings Plan Enrollment Handbook (PDF 260 KB) .

It is important to note that there is market risk involved when investing in mutual funds, including possible loss of principal.

AP2007/12/9728