Skip to Main Content

Start Of Main Content

Higher Contributions May Be Available with an Individual 401(k) Plan for Your Business

An Individual 401(k) Plan Might be Right for You

Individual 401(k) is a term for a 401(k) designed specifically for owner-only businesses. The business owner may have the potential to contribute greater amounts to this type of plan than other business retirement plan options. Employer contributions are tax-deductible to the business. Employee salary deferrals can be pre-tax contributions (excluded from income for federal income tax purposes) or Roth contributions (after-tax contributions and qualified distributions can be tax and penalty free).


  • Sole proprietorships, partnerships, limited liability companies (LLCs), or incorporated businesses, including subchapter S corporations, may establish an Individual 401(k) plan.
  • Designed for businesses in which there are 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.
  • All plan contributions are 100% vested immediately.
  • The deadline to establish an Individual 401(k) is the last day of the fiscal year for the business.
  • Any investment earnings grow tax deferred until withdrawn.
  • Generally, a 10% tax penalty on distributions applies to participants under age 59½. Participants will have to pay federal income tax on the distributions.


  • Designated Roth Contributions are allowed.
  • The owner(s) may make salary deferral contributions of up to $18,500 in 2018 ($24,500 for age 50 and over), either excluded from federal income tax or as Designated Roth Contributions.
  • Contributions are flexible and no annual contribution is required.
  • The owner-employee may be able to contribute more to an Individual 401(k) than other types of retirement plans.
  • The Individual 401(k) plan offers lower administration fees than a traditional or Safe Harbor 401(k) or a profit-sharing plan.
  • If employed and compensated by the business, the business owner's spouse may also participate in the Individual 401(k).
  • Non-discrimination testing is not required.
  • No annual reporting is required until assets reach $250,000; after that, Form 5500 EZ is filed.