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).

Individual 401(k) Plan Features

  • 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  • Any investment earnings grow tax deferred until withdrawn.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.