The Individual 401(k) for Small Businesses

As the owner of a small business, you may be able to have similar retirement benefits afforded to large companies through a 401(k) plan. If you and your spouse operate your business without any employees, State Farm offers a simplified 401(k) that we call an Individual(k) plan.

The Individual(k) plan may allow a small business owner, and their spouse if applicable, to shelter more income from taxes than other types of retirement plans. This plan is available for a business established as a sole proprietorship, partnership, limited liability company (LLC) or incorporated, including a Subchapter S corporation. The Individual(k) plan is not eligible for a business determined to be part of a controlled group of businesses.

Contributions are flexible to the Individual(k) plan that include pre-tax elective deferrals, after-tax Designated Roth Contributions, discretionary or profit sharing, and rollover contributions. As the business owner, you can contribute up to 25% of eligible compensation to the plan as a discretionary or profit sharing contribution. Elective deferral limits are adjusted periodically by the Internal Revenue Service including the additional elective deferral amount for participants age 50 or older.

Additional benefits of the Individual(k) plan are the ability to borrow a portion of the account balance through a loan provision and/or withdraw funds due to a hardship situation.

The deadline to establish an Individual(k) plan is by the last day of the fiscal year of the business. For a calendar year business, this deadline is December 31st.

Neither State Farm nor its agents provide tax or legal advice. Please consult your own adviser regarding your particular circumstances.