The Individual 401(k) for Small Businesses

Inside the Individual 401(k) for Small Businesses

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As a small business owner, you may be able to have retirement benefits similar to those offered by large companies. If you and your spouse operate a small business without any employees, a simplified 401(k), called an Individual(k) plan, may be a good option to help you work toward your retirement goals.


There are several reasons an Individual(k) could be worth looking into:

  • It may allow the owner and their spouse (if applicable) to shelter more income from taxes than other types of retirement plans
  • 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
  • The business owner can borrow a portion of the account balance through a loan provision and/or withdraw funds in the event of a hardship situation

Additionally, contributions to the Individual(k) plan are flexible and can include pre-tax elective deferrals, after-tax Designated Roth Contributions, discretionary or profit sharing, and rollover contributions. A small business owner can contribute up to 25% of eligible compensation to the plan as a discretionary or profit sharing contribution. Elective deferral limits are adjusted periodically by the Internal Revenue Service, including the additional elective deferral amount for participants age 50 or older.


An Individual(k) plan is available for businesses established as a sole proprietorship, partnership, limited liability company (LLC) or incorporated, including a Subchapter S corporation. Businesses determined to be part of a controlled group of businesses are not eligible.

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

Offering a retirement plan is a great way to attract and retain employees. Discover more retirement plan options for small businesses.


Neither State Farm® nor its agents provide tax or legal advice.