Independent 401(k)

AAA

DEFINITION of 'Independent 401(k)'

A 401(k) plan set up for an individual running a sole proprietorship or a small business with a spouse/immediate family member. Plan contribution limits for the individual are equal to a typical company-sponsored 401(k), but the sole proprietor can also make an employer contribution to an independent 401(k), thereby raising the total contribution allowed.

The independent 401(k) may also be called a "solo 401(k)" or an "indie K".

INVESTOPEDIA EXPLAINS 'Independent 401(k)'

As with standard 401(k) plans, catch-up contributions are allowed for those above age 50 who have indie 401(k)s - up to $5,000 in 2006. Contributions made to the plan as an employer are also tax-deductible, which can help to save the sole proprietor a great deal in taxes.

The independent 401(k) offers many of the same features as a Keogh plan or an SEP IRA, but an independent 401(k) can be cheaper to establish and maintain, and loans are often allowed against an independent 401(k).

The major drawback to the independent 401(k) is that no outside employees can be hired, or the window of applicability closes.

VIDEO

Loading the player...
RELATED TERMS
  1. 401(a) Plan

    A money-purchase retirement savings plan that is set up by an ...
  2. KSOP

    A qualified retirement plan that combines an employee's stock ...
  3. Opt-Out Plan

    A type of 401(k) plan that automatically enrolls the employees ...
  4. Roth 401(k)

    An employer-sponsored investment savings account that is funded ...
  5. Plan Sponsor

    A designated party, usually a company or employer, that sets ...
  6. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
RELATED FAQS
  1. Who is eligible for an independent/individual 401(k)?

    A business owner who operates his or business with the intent of making a profit and does not hire full-time employees is ... Read Full Answer >>
  2. What are the benefits of an independent/individual 401(k)?

    An individual or independent 401(k) retirement account is no different from a traditional 401(k) account in its structure ... Read Full Answer >>
  3. I have a small business (LLC), which I operate part-time. I also work full time for ...

    As long as you have no ownership in the company for which you work full-time and the only relationship you have with the ... Read Full Answer >>
  4. Places where I can open an IRA Account?

    An individual retirement account can be opened through a range of major financial institutions, including brokerage firms ... Read Full Answer >>
  5. What rate of return should I expect on my 401(k)?

    An employer-sponsored retirement plan such as a 401(k) can be a valuable tool in accumulating savings for the long-term. ... Read Full Answer >>
  6. How can an entrepreneur save for retirement?

    One of the benefits many companies offer their employees is the opportunity to contribute to some form of retirement savings ... Read Full Answer >>
Related Articles
  1. Entrepreneurship

    Business Owners: How To Set Up An SEP IRA

    SEP IRAs are simple to set up and run, making them a popular choice for business owners.
  2. Retirement

    Is Your 401(k) On Track?

    Small adjustments can have a significant impact on your returns. Learn what to watch for.
  3. Retirement

    Sometimes It Pays To Borrow From Your 401(k)

    401(k) loans have been demonized, but they're often the most beneficial source of cash.
  4. Entrepreneurship

    401(k) Plans For The Small Business Owner

    If you own a business, this may be the plan for you! Find out about its benefits and eligibility requirements.
  5. Retirement

    Some Tax Considerations For Your Retirement Income

    Even if you don’t plan to retire, it’s still a good idea to think ahead about where to live, your income and how it all interacts with Social Security.
  6. Retirement

    Track Your Retirement Money With These Apps

    Try these four mobile and online apps to stay on top of your retirement income – in brokerage accounts, IRAs, 401(k)s, even Social Security.
  7. Mutual Funds & ETFs

    Should GE Be Part of Your Portfolio?

    Here's what you need to consider if you are thinking of adding GE to your portfolio.
  8. Professionals

    Advisors: Don't Overlook Not-Yet-Rich Millennials

    Financial advisors looking to grow their practices should focus on potential high-net-worth millennials.
  9. Retirement

    Top 10 Mistakes To Avoid On Your IRA

    IRA rules are complicated. It's easy to make mistakes – and they can cost you big time.
  10. Retirement

    Don't Make These Top 10 Mistakes On Your Roth IRA

    Don't lose out on the benefits of a Roth by contributing too much, breaking rollover rules or making other avoidable errors.

You May Also Like

Hot Definitions
  1. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  2. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  3. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  4. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  5. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
  6. Marginal Utility

    The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important ...
Trading Center