You can make profit sharing, before-tax salary reduction, and, if allowed by your plan, after-tax Roth plan contributions to your Individual 401(k) account up to $51,000 per participant for investors under age 50 in 2013 and $56,500 for investors age 50 or older in 2013. For 2012 the limit is $50,000 and $55,500 if age 50 or older.
- The money contributed before tax in your Individual 401(k) account generally is deductible as a business expense and grows tax-deferred until withdrawal, usually during retirement.
- If allowed by your plan, Roth plan contributions can help you avoid taxes on earnings with qualified distributions* and can potentially maximize your spendable income in retirement.
- Setting up a T. Rowe Price Individual 401(k) Plan is free.
- You can choose from more than 80 low-cost T. Rowe Price mutual funds with no loads or sales commissions.
Unlike before-tax salary reduction contributions, Roth plan contributions are made with after-tax dollars, or money you've already paid taxes on. This means that your Roth contributions are included in the amount that you report to the IRS as taxable income. Like before-tax salary reduction contributions, Roth plan contributions are automatically deducted from your pay (or income for unincorporated individuals). When you make Roth plan contributions, however, the amount of your take-home pay will be less than when you make before-tax salary reduction contributions.
The good news is that the balance of your Roth plan contributions and any earnings are not taxed when you take a qualified distribution*―generally in retirement. In fact, Roth plan contributions can help you avoid taxes on earnings. The bottom line: You can potentially maximize your spendable income in retirement, even if it means giving up before-tax advantages now.
To start an Individual 401(k) Plan for your business, you can download the necessary forms using the link below. For questions and assistance in completing the forms, or to discuss your options, call a T. Rowe Price Small Business Retirement Specialist at 1-800-638-3804. You can also request that an Individual 401(k) Plan kit be sent to your home or business.
Self-employed individuals and small businesses with no eligible employees other than the owner (and spouse). This includes:
- Sole proprietors
- Spouse-only partnerships
- Corporations (including "S" corporations)
- Individuals with self-employment income
The plan is not recommended for businesses that are planning to add non-spouse employees in the near future.
The Individual 401(k) Plan must be set up by your business's fiscal year-end, generally December 31. Employer/profit sharing contributions can be made up until your business's tax filing deadline (generally April 15), plus any extensions.
Salary deferral contributions can be made up until your business's tax filing deadline (generally April 15 or March 15 for corporate entities), plus any extensions.
The Plan Sponsor website is a convenient way to make contributions via the Automated Clearing House (ACH).
Enroll now to save time and have your contributions invested sooner.
Log into Plan Sponsor Web to enter your contribution information and then simply print the confirmation and mail it with your check.
Print out an Employer-Sponsored Retirement Plan Contribution form.
T. Rowe Price
P.O. Box 17479
Baltimore, MD 21297-1479
|Express Delivery only:
T. Rowe Price Mail Code 17479
4515 Painters Mill Rd
Qwings Mills, MD 21117
You can contribute up to 25% of compensation per participant to the Individual
401(k) Plan. On top of that, you can add up to $17,500 more in salary deferrals for tax year 2013 if you're under age 50 ($23,000 if you're age 50 or older in 2013). 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 cannot exceed $51,000 per participant under age 50 in 2013 ($56,500 for investors age 50 and over in 2013).
Note: For 2012 the salary deferral limit is $17,000 if you're under age 50 ($22,500 if you're age 50 or older in 2012). The total contributions cannot exceed $50,000 ($55,500 for investors age 50 and over in 2012).
No. Each year, you decide if, and how much, to contribute to the plan. Use the Individual 401(k) Plan Salary Reduction Agreement to elect or change the amount you wish to withhold from your pay, and use the ACH Contribution Transmittal Form or the Individual 401(k) Plan Contribution Transmittal Form to remit contributions to your account.
T. Rowe Price charges no plan setup fees, loads, or sales commissions. There is a $20 account service fee 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 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 account.
You are generally required to file IRS Form 5500-SF or Form 5500-EZ each year if the combined assets in all plans sponsored by the employer exceeds $250,000. T. Rowe Price provides information and instructions to help you complete the form.
There are advantages to both types of contributions. But, as the chart below shows, there are important differences. Deciding whether to make Roth plan contributions depends on your situation and should be based on several factors, including your age and tax rates now and as expected in retirement.
|Before-Tax Contributions||Roth Plan Contributions|
|When you contribute||When you contribute|
|When you withdraw||When you withdraw|
|Your contributions and earnings are taxed upon distribution||Your contributions and earnings are tax-free if you take a qualified distribution*|