Individual 401(k)

The Individual 401(k) Plan allows self-employed individuals and small business owners (and spouses) 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 $49,000 for tax year 2009 ($46,000 for 2008). In 2009, individuals age 50 or older can contribute up to an additional $5,500 in "catch up" contributions ($5,000 in 2008).

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.

• Start an Individual 401(k)
• View Individual 401(k) FAQs

• Significant Tax Savings Potential
• Is the Individual 401(K) Plan Your Best Retirement Savings Option?
• Valuable Benefits Targeted to Small Businesses
• Low Costs

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 $5,200 in taxes.¹
• Before-tax profit sharing and salary reduction contributions made for retirement are generally deductible as a business expense.

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) 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) Plan is suited to your retirement needs:

The maximum amount of earned income that can be used in determining your contribution $245,000 in 2009 ($230,000 in 2008). The maximum deductible plan contribution is $49,000 for investors under age 50 in 2009 ($46,000 for 2008) and $54,500 for those age 50 and over in 2009 ($51,000 for those age 50 and over in 2008).

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 2009 cannot exceed $49,000 per participant if under age 50 ($46,000 for 2008) and $54,500 if age 50 or older in 2008 ($51,000 in 2008). The maximum amount of a participant's compensation that can be used to determine the plan contribution is $245,000 for 2008 ($230,000 for 2008).

• There are no commissions or plan setup costs.
• Choose from more than 70 no-load mutual funds.
• We keep our mutual fund expenses low to help you save even more.
• An annual $10 administrative fee is charged for each mutual fund account with a balance of less than $5,000. This fee is waived for shareholders with $50,000 or more or households with $100,000 or more in total assets at T. Rowe Price. Assets held in a 529 plan, a plan that is part of the Century Program, or assets held in a plan that was/is recordkept in the Retirement Plan Services division of T. Rowe Price are not counted toward these limits.
• There is a $10 closeout fee applied to an account that is closed at T. Rowe Price. The fee will be deducted automatically from the proceeds of the redemption from each mutual fund unless, at the time of redemption, the annual administrative fee for the year has been paid. The closeout fee applies regardless of the size of the mutual fund investments.