There is only one kind of individual 401(k) plan in existence today. An Individual 401(k) plan is available to self-employed individuals and business owners, including sole proprietors, corporations, partnerships, and tax-exempt organizations with no employees other than a spouse. You must have a minimum 5% business share to be eligible. Have questions about 401(k) Plans? Click here. If you are self-employed or own a business of one of the types described above and would like to make a substantial contribution for your retirement, then this plan is for you. Contribution limits for 2024: If you are age 50 or above, then you can make an additional catch-up contribution of $7,500 to bring your total contributions to $76,500. And these numbers are expected to rise as time passes. In order to figure out the amount of money that you can put into your self-employed 401(k) plan in a given year, you must first determine the total amount of your "earned income" for that year. This figure is equal to your net earnings from self-employment minus half of your self-employment tax and the contributions to the plan that you made for yourself. Use the rate table or worksheets in Chapter 5 of IRS Publication 560, Retirement Plans for Small Business, for figuring your allowable contribution rate and tax deduction for your 401(k) plan contributions. You can invest your plan in a wide range of investment options, including mutual funds, annuities, stocks, bonds, CDs, guaranteed investment contracts, and other assorted vehicles designed to grow in value over time. Virtually all investment firms, brokers, banks and insurance companies can help you to administrate this type of plan and keep record-keeping and other paperwork to a minimum. The investment firm or bank that you choose to help you administrate your plan will also act as your plan's custodian and thus invest your contributions according to your specifications. The investment firm will also hold your contributions for safekeeping. You are not required to contribute to the plan every year; if your income is low in a given year, then you can pass on your contributions for that year if necessary. If you hire any employees who qualify to participate in the 401(k) plan, you must make this available to them. But the plan will then have to meet the top-heavy and nondiscrimination tests that apply to all 401(k) plans with more than one participant.Self-Employed 401(k) Plan
Self-Employed 401(k) Contribution Limit
Individual 401(k) Investments
Individual 401(k) Plan Requirements
Individual 401(k) Plans FAQs
A 401(k) plan is a retirement plan offered by an employer designed to help employees save for retirement.
An Individual 401(k) plan is available to self-employed individuals and business owners, including sole proprietors, corporations, partnerships, and tax-exempt organizations with no employees other than a spouse.
An Individual 401(k) plan can be opened by self-employed individuals with no full-time employees other than themselves and their spouses. Companies with fewer than 100 employees may also be eligible to open an Individual 401(k).
The amount you are able to contribute to your Individual 401(k) plan will depend on a few factors such as your age, income, and the contribution limits set by the IRS. Generally speaking, you can contribute up to $19,500 in 2020 or 100% of earned income (whichever is less).
Yes. Contributions made to an individual 401(k) are tax-deductible in most cases and all earnings within the plan grow tax-deferred until they are withdrawn during retirement.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
