Individual 401(k) Plans

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on January 29, 2024

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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.

Self-Employed 401(k) Plan

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:

  • Employee contributions (elective deferrals): Up to $23,000, or 100% of your compensation, whichever is less.
  • Employer contributions: Up to 25% of your net earnings from self-employment, up to a maximum of $69,000 (including your employee contributions).

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.

Self-Employed 401(k) Contribution Limit

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.

Individual 401(k) Investments

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.

Individual 401(k) Plan Requirements

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.

Individual 401(k) Plans FAQs

About the Author

True Tamplin, BSc, CEPF®

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.

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