Individual 401(k) Plan: Traditional and Roth
You can make substantial contributions toward your retirement while receiving many of the same benefits of a conventional 401(k). And as the owner, you can contribute both as the employer and an employee.
Who is eligible for an Individual 401(k) plan?
An Individual 401(k) plan is available to self-employed individuals and business owners, including sole proprietors, owner-only corporations, partnerships, and independent consultants with no employees other than a spouse.
What are the benefits of an Individual 401(k) plan?
Every Schwab account comes with one-on-one investment help and guidance. With this account, you'll also get:
- Higher potential contribution limits than SEP IRA and profit-sharing plans
- Ability to make profit-sharing contributions and salary deferrals
- Flexible annual contributions
- Retirement planning tools and resources
- 24/7 service and support
What are the tax implications of an Individual 401(k) plan?
Tax implications vary for traditional and Roth plans:
- Contributions to a traditional Individual 401(k) plan are generally tax deductible.
- Contributions to a Roth Individual 401(k) plan are after-tax salary deferrals.
- For a traditional Individual 401(k), earnings grow tax-deferred and assets are not taxed until they are withdrawn in retirement.
- Qualified Roth distributions are tax-free if you are over age 59½ and have held the account for over 5 years.
What are the pricing details for an Individual 401(k) plan?
There is no fee to open or maintain an account at Schwab.
- Minimum opening deposit: $0.
- $0 account open or maintenance fees. Other account fees, fund expenses, and brokerage commissions may apply.1
Find out more about our fees and minimums.
Ready to get started?
Follow these steps to build, manage, and make contributions to your retirement plan.
Establish your Individual 401(k) plan.
Here are all the documents you'll need to set up your plan.
Note: To establish your plan, you will need an Employer Identification Number (EIN) or a Social Security Number (SSN) if a sole proprietor is acceptable.
Complete & return to Schwab
Documents for your records
Manage your plan and start making contributions.
Complete & return to Schwab
Documents for your records
- Summary Plan Description
- Elective Deferral Agreement: All participants, including the business owner(s), must complete this to indicate the elective deferral amount to have withheld from compensation.
Common questions
If you have a specific question that's not answered here, please call us at 866-855-6637.
Plan accounts are funded with a combination of traditional and designated Roth salary deferrals and annual profit-sharing contributions to the traditional 401(k). Vesting is immediate, and participants can direct how contributions are invested. Individual 401(k) plans do not need to be funded annually.
Individuals may contribute up to $22,500 for 2023 ($30,000 if age 50 or older) and $23,000 for 2024 ($30,500 if age 50 or older). Employers may contribute up to 25% of compensation, up to the annual maximum of $66,000 for 2023 and $69,000 for 2024. Total contributions cannot exceed $66,000 for 2023 ($73,500 if age 50 or older and contributing the catch-up contribution amount) and $69,000 for 2024 ($76,500 if age 50 or older and contributing the catch-up contribution amount). Salary deferral catch-up limits are $7,500 for 2023 and 2024 (if age 50 or older).
Contributions to an Individual 401(k) can be higher than contributions to other types of retirement plans.
You can fund your account as both the employer and the employee with the following: Annual profit-sharing contributions of up to 25% of your compensation or 20% of your net self-employment income.
SECURE 2.0 Act allows business owners to both establish an Individual 401(k) and make retroactive employer contributions until tax filing deadline plus extensions. Unincorporated business owners have until tax filing deadline, excluding extensions, to make retroactive elective deferrals. Generally, if your business is incorporated, you must make your deferral contributions in the same tax year.
You'll need to file IRS Form 5500 annually when your plan assets reach or exceed $250,000, or when you terminate your plan.
You must have a triggering event—generally either termination of employment or retirement—to take a distribution.
Traditional Individual 401(k)
- Generally, all withdrawals are subject to taxes.
- Withdrawals before age 59½ may be subject to a 10% penalty.
- Distributions are subject to a mandatory 20% federal tax withholding, except for Required Minimum Distributions (RMDs), hardship withdrawals, certain qualified exceptions, and direct rollovers.
- If you own 5% or more of the business, you must begin taking RMDs annually, starting with the year you reach age 73. If you don't make withdrawals, you may be subject to a penalty.
Under SECURE 2.0, if you don't take your RMD by the IRS deadline, a 25% excise tax on insufficient or late RMD withdrawals applies. If the RMD is corrected timely, the penalty can be reduced to 10%. Follow the IRS guidelines and consult your tax advisor.
Roth Individual 401(k)
Qualified Distributions: Always tax-free.
- You can start making qualified distributions from a Roth 401(k) once you have satisfied two conditions: You are age 59½ or older, and you have met the five-year rule.
Non-Qualified Distributions: Earnings are generally subject to taxes.
- If you are under 59½ and/or have not met the 5-year rule, you may have to pay income tax, and if you are under 59½, you may incur a 10% penalty.
- Early withdrawals must include both contributions and earnings prorated based on the ratio of contributions to earnings in the account.
- Earnings are subject to a mandatory 20% federal tax withholding, except for hardship withdrawals, certain qualified exceptions, and direct rollovers.
SECURE 2.0 has eliminated RMDs for Roth 401(k) plans starting in 2024.
You may not take loans from your Individual 401(k) account.
Please refer to the IRS page on Individual 401(k) plans link for more information.