What is an Individual 401(k)?
An Individual 401(k)—also known as a solo 401(k)—is a retirement plan that can maximize your savings if you're self-employed or if you're a partner in a business whose only employees are the partners and their spouses.
Who can participate
Self-employed individuals and business owners with no common-law employees and their spouses who are employed by the business. The business owner can contribute both as an employer and employee. Also C corporations, S corporations, and limited liability companies (LLCs).
Employer contribution limits
- Up to 25% of compensation* not to exceed $55,000 for the 2018 tax year and $56,000 for the 2019 tax year.
- Contributions are generally deductible as a business expense and aren't required every year. When contributions are made, however, all participants must receive the same percentage.
Employee contribution limits
- Employees may defer 100% of their compensation up to $18,500 for the 2018 tax year ($24,500 for employees age 50 or older) and $19,000 for the 2019 tax year ($25,000 for employees age 50 or older).
- Employee contributions can be either pre-tax or after tax (Roth).
As a business owner, you can contribute both as an employer and employee. The combined amount of employer plus employee contributions can't exceed $55,000 for the 2018 tax year ($61,000 if you're age 50 or older) and $56,000 for the 2019 tax year ($62,000 if age 50 or older).
No age, income, or other restrictions.
Vanguard plan features
Roth (after-tax) contributions are allowed.
Account service fees
We charge $20 a year for each Vanguard fund held in a Vanguard Individual 401(k) account. The fee may be waived in certain circumstances.
Account setup & maintenance
- There's no fee to establish an account.
- For one-participant plans, annual filing of Form 5500 is required once the plan's assets reach $250,000 or you terminate the plan. We'll provide you with information each year to help you complete the form.
- Plan administration may require occasional duties, such as periodically updating or restating the plan.
Withdrawals & loans
- You can't take withdrawals until a specified event, such as reaching age 59½, termination of the plan, separation from service, or other event as identified in the plan.
- You may be allowed to take a hardship withdrawal, which may be subject to a 10% penalty if you're under age 59½.
- You may not take a loan from your Vanguard Individual 401(k).
- You'll pay ordinary income tax on any taxable distributions.
- Roth distributions are tax- and penalty-free if taken after age 59½ and you've had the Roth Individual 401(k) for more than 5 years.
An employee other than an owner, a business partner, or a shareholder of a corporation and their respective spouses. (Independent contractors are not employees.)
A type of investment that pools shareholder money and invests it in a variety of securities. Each investor owns shares of the fund and can buy or sell these shares at any time. Mutual funds are typically more diversified, low-cost, and convenient than investing in individual securities, and they're professionally managed.
A fund that buys all (or a representative sample) of the securities in a specific index, such as the S&P 500 Index.