Individual 401(k) Plan

"Individual 401(k)" is a term for a 401(k) plan for owner-only businesses. The business owner may have the potential to contribute greater amounts to this type of plan than other retirement plan options. Employer 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 the only employee is the owner’s spouse.
Union employees and non-resident aliens who have no U.S source of income may generally be excluded from coverage

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 the participant's compensation.
Salary Reduction Contributions 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Tax-deferred growth potential is possible -- any investment earnings grow tax-deferred until withdrawn.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.
Salary Reduction Contributions are elected by the participant.

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 owner-employee.
The owner-employee 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 $250,000. 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 553 KB) .

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

AP2009/08/3200