Tuesday, 26 August 2014 00:00

Individual 401(k)

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An individual (solo) 401k provides substantial pretax investment opportunities for individual consultants and business owners.

Business owners without employees may be able to contribute more by setting up an Individual 401(k) plan also known as a “solo 40lk” than they can contribute with any other retirement plan.

Here is a summary of how it works:

The Solo 401(k) puts the power of the 401(k)--with its high contribution limits and flexible investments--into the hands of the business owner. This plan allows owners to make both employer and employee contributions, providing owners the ability to maximize their personal retirement contributions and their business deductions. Since there are no employees, there is no compliance testing requirements.   A Solo 401(k) is most suitable for self-employed individuals or a business owner with no additional employees other than a spouse or a child.  Most certainly consider this type of plan if your business has irregular profit patterns.

Key plan benefits

  • Discretionary funding
  • Higher contribution limits
  • Greater control over withdrawal timing
  • Low administrative expenses

Eligible businesses include sole proprietorships, partnerships and incorporated businesses (DBA, C Corp, S Corp or LLC).

Setup and funding:

An Individual 401(k) must be established by the end of the employer's tax year and funded by the employer's tax return due date, plus extension. Contributions can vary by year.

Employee contributions limits are up to $17,500 in salary deferrals ($23,000 a year for individuals age 50 and over)

Employer contribution limits are 25% of compensation or $52,000; $57,500 for individuals age 50 and over (whichever is less).


To learn more about this small business plan, call us at 508-893-0872.

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