Higher contributions may be available with an individual 401k plan for your business
An individual 401k plan might be right for you
Individual 401k is a term for a 401k 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 401k plan.1
- 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 401k 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- Any investment earnings grow tax deferred until withdrawn.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 $22,500 in 2023 ($30,000 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 401k than other types of retirement plans.
- The Individual 401k plan offers lower administration fees than a traditional or Safe Harbor 401k or a profit-sharing plan.
- If employed and compensated by the business, the business owner's spouse may also participate in the Individual 401k.
- Non-discrimination testing is not required.
- No annual reporting is required until assets reach $250,000; after that, Form 5500 EZ is filed.
1 Available only for spousal owners; product not available if business includes non-spousal owners.
Securities distributed by State Farm® VP Management Corp.
Securities are not FDIC insured, are not bank guaranteed and are subject to investment risk, including possible loss of principal.
Neither State Farm® nor its agents provide tax or legal advice.