Individual 401(k) Plan

Get detailed instructions in Establish Your Plan, or call us at 866-855-6637 if you have questions.

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.

Contributions to an Individual 401(k) plan are tax-deductible. Earnings grow tax-deferred and assets are not taxed until they are withdrawn in retirement.

Plan accounts are funded with a combination of salary deferrals and annual profit-sharing contributions. Vesting is immediate, and participants can direct how contributions are invested. Individual 401(k) plans do not need to be funded annually.

You can make a pre-tax salary deferral up to $20,500 for 2022 and $22,500 for 2023 ($27,000 for 2022 and $30,000 for 2023 if age 50 or older). You can also make profit sharing contributions up to 25% of compensation (20% if you're self-employed⁴) or $61,000 for tax year 2022 or $66,000 for tax year 2023, whichever is less. In total, your maximum combined contribution, including salary deferral, cannot exceed $61,000 for tax year 2022 and $66,000 for tax year 2023 ($67,500 for 2022 and $73,500 for 2023 if age 50 or older).

Starting with 2020 tax years, employers may establish an Individual 401(k) by their tax return due date, plus extensions. Salary deferrals generally should be made by the end of the business tax year, unincorporated business owners should review with their tax advisor for additional information. Profit -sharing contribution are due by the business’s tax-filing deadline (plus extensions).

You'll need to file IRS Form 5500 annually when your plan assets reach or exceed $250,000.

You must have a triggering event—generally either termination of employment or retirement—to take a distribution. 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, 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 pay a penalty.

The new SECURE 2.0 reduces the 50% penalty for missing an RMD effective for RMDs in 2023, it does not impact missed RMDs in 2022.  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 down to 10%. Follow the IRS guidelines and consult your tax advisor.

You may not take loans from your Individual 401(k) account.

The Plan Summary describes the plan benefits and eligibility requirements. Fill in the information and provide a photocopy of the completed document to each participant. Do not return this document to Schwab.

All participants, including the business owner, must complete the Elective Deferral Agreement to indicate the elective deferral amount to have withheld from compensation. Retain the original completed copy for your records and provide a photocopy to plan participants. Do not return this document to Schwab.

Send one check made payable to Charles Schwab & Co., Inc., FBO "Your Company Name" along with a letter listing the exact amount to be deposited per account number and the plan year for which you are contributing. Be sure your check total matches the total amount of participant contributions. Mail your check to one of the addresses below:

Charles Schwab & Co., Inc.
P.O. Box 982600
El Paso, TX 79998-2600

Use the Contribution Transmittal Form to record contributions to your participant accounts, including the business owner’s.