As a small business owner with no employees, you may be able to contribute more than with other retirement plans.
An Individual 401(k) may work well if you have income of less than $200,000 and want to maximize your retirement savings. With an Individual 401(k) you have the flexibility to change how much your business contributes from year to year.
Eligibility to contribute
You can contribute at any age if you are self-employed or a business partner.
Maximum annual contribution
- May use a combination of salary deferral and profit sharing contributions
- Profit Sharing: Up to 25% of compensation or $53,000 (2015)
- Salary deferral: Up to 100% of compensation or $18,000 (2015) [$24,000 if over age 50]
- The total combination of salary deferral and profit sharing contributions may not exceed $53,000 (2015) [$59,000 age 50 and older]
As a small business owner, you can deduct your contributions for yourself, and your business partner from your company’s federal taxable income.
Your plan may now allow you to allocate part or all of your deferral to a Roth 401(k). Roth 401(k) salary deferrals are not tax deductible but contributions and earnings have the potential to grow tax deferred and may be eligible for income tax free withdrawals if held for five years and attaining age 59½.
Taxation of earnings and withdrawals
Tax-deductible contributions and earnings are taxed as ordinary income when withdrawn.
Types of investments
Stocks, bonds, mutual funds and Advisory Products available through a Wells Fargo Advisors brokerage account.
Minimal initial investment
Varies by investment option
10% IRS early withdrawal penalty if withdrawn before age 59½ unless exception applies.
- Normal retirement age
- Substantially equal payments made over life expectancy
- Termination of service after five years and reaching age 55
- Qualified military reservist
Must begin at age 70½
Deadline to set up and fund
- Plan must be established by the last day of the business’ fiscal year.
- Salary deferral portion of the contribution must be deducted from a paycheck prior to year end.
- Business owner (employer) contribution may be made up through the business’ tax filing due date plus extensions.
Commissions and fees
Vary by account and investments
Call us at 1-877-493-4727