Independent 401(k)


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".


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BREAKING DOWN '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.

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  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 >>
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    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. What is the size of the average retirement nest egg?

    According to a 2015 Government Accountability Office (GAO) study, people between the ages of 55 and 64 with any retirement ... Read Full Answer >>
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