| Account Description |
As a small business
owner with no employees, you may be able
to contribute more than with other
retirement plans.
An Individual 401(k) may work well if
you have income of less than $180,000
and want to maximize your retirement
savings. With an Individual 401(k) you
have the flexibility to change how much
your business contributes from year to
year. |
| Eligibility to Contribute |
You can contribute
at any age if you are self-employed or a
business partner. |
| Maximum Annual
Contribution |
May use a
combination of salary deferral and
profit sharing contributions.
2006 tax year:
- Profit Sharing: Up to 25% of
compensation or $44,000.
- Salary deferral: Up to 100% of
compensation or $15,000 ($20,000 if
over age 50).
- Combination may not exceed
$44,000 or ($49,000 age 50 and
older).
2007 tax year:
- Profit Sharing: Up to 25% of
compensation or $45,000.
- Salary deferral: Up to 100% of
compensation or $15,500 ($20,500 if
over age 50).
- Combination may not exceed
$45,000 or ($50,000 age 50 and
older).
|
| Tax-Deductible
Contributions |
As a small business
owner, you can deduct your contributions
for yourself, and your business partner
from your company’s federal taxable
income.
Your plan may now allow you to allocate
part or all of your deferral to a Roth
401(k). Roth 401(k) salary deferrals are
not tax deductible but contributions and
earnings grow tax deferred and may be
eligible for income tax free withdrawals
if held for five years and attaining age
59 ˝. |
| Taxation of Earnings and
Withdrawals |
Tax-deductible
contributions and earnings are taxed as
ordinary income when withdrawn. |
| Types of Investments |
Thousands of mutual
funds from many well-known fund families
available through any investment firm. |
| Minimum Initial Investment |
Varies by account |
| Withdrawal Penalties |
10% IRS early
withdrawal penalty if withdrawn before
age 59 1/2 unless exception applies.
Exceptions include:
- Normal retirement age
- Death
- Disability
- Substantially equal payments
made over life expectancy
- Termination of service after
five years and reaching age 55
- Rollover to an IRA
- Qualified military reservist
|
| Required Withdrawals |
Must begin at age 70
1/2. |
| Deadline to Set Up and
Fund |
Plan must be
established by the last day of the
business' fiscal year.
- Salary deferral portion of the
contribution must be deducted from a
paycheck prior to year end.
- Business owner (employer)
contribution may be made up through
the business’ tax filing due date
plus extensions.
|
| Commissions and Fees |
Varies by
investment firm. |
