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The Individual 401(k) Retirement Plan allows one-person business owners (and their working spouse) the opportunity to save more for retirement. Current tax rules allow tax-deductible profit sharing and salary reduction contributions (and after-tax Roth plan contributions if allowed by the plan) of up to $52,000 for tax year 2014 ($51,000 in 2013). In 2013 and 2014, individuals age 50 or older can contribute up to an additional $5,500 in "catch up" contributions.

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Note: The Individual 401(k) Plan is not appropriate for a business that has, or plans to add, any non-spouse employee who would be eligible to participate in the plan.

Individual 401(k) Retirement Plan Benefits at a Glance

Significant Tax Savings Potential

Making profit sharing and before-tax salary reduction contributions to an Individual 401(k) Plan can help reduce your taxable income while saving for retirement.

  • The example below shows how an unincorporated small business owner with $100,000 in income can save as much as $5,400 in taxes.1
  • Before-tax profit sharing and salary reduction contributions made for retirement are generally deductible as a business expense.
  Without an Individual
401(k) Plan
With an Individual
401(k) Plan
Net Business Income $100,000 $100,000
Less: Net itemized deductions, ½ Self-Employment Tax and Four Exemptions 34,865 34,865
Less: Before-Tax Contributions 0 36,087
Taxable Income 65,135 29,048
Regular Tax Due 8,8785 3,465
Self-Employment Tax Due 14,130 14,130
Total Tax 23,007 17,594
Tax Savings $0 $5,413
1Based on 2013 IRS Tax Tables. This chart represents an unincorporated, self-employed, married individual under age 50 with two dependent children, filing jointly. The individual earns $100,000 and the spouse has no earned income. The chart shows the difference between the tax due if no contributions are made and the tax due if the maximum contribution is made to an Individual 401(k) Plan. Actual savings will vary.

Is the Individual 401(k) Plan Your Best Retirement Savings Option?

If you are self-employed or run a small business with no employees other than your spouse and you have no plans to add employees in the future, the Individual 401(k) Retirement Plan may work best if you are:

  • Under age 50 with net business income of less than $239,600 (or W-2 wages under $184,400), or
  • Age 50 or older and able to make "catch-up" contributions in addition to your salary deferral contributions.

The chart below is a quick reference to help determine if the Individual 401(k) Retirement Plan is suited to your retirement needs in 2013:

Maximum Individual 401(k) Contributions
Maximum Individual 401(k) Contribution, Unincorporated Business
Net Business Profit Investors Under Age 50 Investors Age 50 or Older in 2013 Making Catch-up Contributions
$25,000 $22,147 $23,088
$50,000 $26,794 $32,294
$75,000 $31,440 $36,940
$100,000 $36,087 $41,587
$125,000 $40,755 $46,255
$150,000 $45,688 $51,188
$200,000 $51,000 $56,500
Maximum Individual 401(k) Contribution, Incorporated Business
Net Business Profit Investors Under Age 50 Investors Age 50 or Older in 2013 Making Catch-up Contributions
$25,000 $23,750 $25,000
$50,000 $30,000 $35,500
$75,000 $36,250 $41,750
$100,000 $42,500 $48,000
$125,000 $48,750 $54,250
$150,000 $51,000 $56,500
$200,000 $51,000 $56,500

The maximum amount of earned income that can be used in determining your contribution is $260,000 for 2014 ($255,000 in 2013). The maximum deductible plan contribution is 25% of compensation plus salary deferrals. Combined employer and salary deferral contributions are limited to the lesser of 100% of the participant's compensation or $52,000 for investors under age 50 and $57,500 ($56,500 in 2013) for those age 50 and over in 2014.

Valuable Benefits Targeted to Small Businesses

T. Rowe Price can help you take a big step toward a comfortable retirement with:

  • Tax-deferred growth potential of your investments: With profit sharing and before-tax salary reduction contributions, you reduce your taxable income now and get the potential for tax-deferred growth on your investments. You don't pay taxes on any of your earnings until you withdraw them―usually during retirement.
  • Tax-free earnings: If allowed by your plan, with after-tax Roth plan contributions, you forgo the advantage of pretax salary reduction contributions now. Later, in retirement, you may potentially maximize your spendable income with tax-free qualified distributions of contributions and earnings.2
  • Generous contribution limits: Each year, you can contribute up to 25% of your compensation to your Individual 401(k) Plan. On top of that, you can add more in salary deferrals. These salary deferral contribution limits apply if you are making before-tax salary reduction contributions, Roth plan contributions, or both to your Individual 401(k) account. Total contributions for tax year 2014 cannot exceed the lesser of 100% for participant compensation or $52,000 ($51,000 in 2013) per participant if under age 50 and $57,500 if age 50 or older in 2014 ($56,500 in 2013). The maximum amount of a participant's compensation can be used to determine the plan contribution is $260,000 for 2014 ($255,000 in 2013).
  2013 2014
Maximum Standard Elective Deferral3 $17,500 $17,500
Catch-Up Contribution $5,500 $5,500
Total For Those Age 50 or Older $23,0004 $23,0004
2Roth qualified distribution. A qualified distribution is tax-free if taken at least five years after the year of your first Roth plan contribution and you've reached age 59½, become totally disabled, or die. If your distribution is not qualified, any withdrawal from your account will be partially taxed.

3If allowed by the Individual 401(k) Plan, the maximum standard elective deferral limit can be any combination of before-tax salary reduction and Roth plan contributions.

4Indexed periodically for inflation. The limit applies to total salary deferrals made by an individual each year to employer-sponsored plan(s).

Low Costs

  • There are no commissions or plan setup costs.
  • Choose from over 90 no-load mutual funds.
  • We keep our mutual fund expenses low to help you save even more.
  • An annual $20 account service fee is charged for each mutual fund account with a balance below $10,000. The $20 account service fee will be waived for the following circumstances: Subscribe to electronic delivery of statements and confirmations*; maintain an individual combined balance of $50,000 or more for all T. Rowe Price accounts (including mutual funds, Brokerage, Variable Annuity, and Small Business Retirement Plans); or qualify for T. Rowe Price Select Client Services based on higher asset levels of $100,000 or more.
  • If the Participant Account is closed during the year, a $20 closeout fee will be deducted automatically from the proceeds of the total redemption. However, the closeout fee is waived when an account service fee was previously assessed to the participant account for that year or when the proceeds are being used for a rollover, transfer or conversion to a T. Rowe Price retirement plan account or T. Rowe Price IRA.
*Participants can subscribe to paperless delivery via the T. Rowe Price website once their account is established.
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