Individual 401(k) Plan
Traditional and Roth
An Individual 401(k), also known as a Solo (k), is a retirement plan designed for self-employed individuals and small business owners who have no full-time employees, except possibly a spouse.
These individuals have the unique opportunity to contribute to the plan as an employee and as the employer, as they strive to maximize their retirement savings potential and tax planning strategies, which serves as a key differentiator from other retirement plans.
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Under Cloutier Wealth Management's full-service program, Individual 401(k) clients are guided through the process of:
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Establishing and customizing their Individual 401(k) plan documents
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Opening the necessary investment accounts at LPL Financial
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Traditional 401(k)​
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Roth 401(k)
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Automating contributions to ensure clients stay on track with their goals
By taking a proactive and holistic approach to wealth management, clients benefit from:
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Personalized strategies based on their entire financial picture
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Working one-on-one with an investment professional to develop an investment strategy that aligns with their risk tolerance, time horizon, goals, and objectives
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Flexibility to choose from a wide range of asset management teams and their Model Wealth Portfolios, adding layers of experience and expertise dealing with complex markets, seeking protection for a client's portfolio
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Transparent fee-only service model (i.e. percentage on assets under management)
With an Individual 401(k), you can contribute as the employee and the employer.
As the Employee:
You can contribute up to $23,500, or up to 100% of compensation, whichever is less, by your contribution deadline. Those who are 50 years or older get to contribute an additional $7,500, while those who are between the ages of 60 to 63 get a higher catch-up contribution of $11,250.
​​As the Employer:
You can make an additional profit-sharing contribution of up to 25% of your compensation or net self-employment income.
*401(k) contribution limits apply by person, rather than by plan. So if you’re also participating in another 401(k), the overall contribution limit applies to all plans.If you've hit the employee contribution limit with another 401(k), you cannot make any more employee deferrals, but you can make employer contributions to your Individual 401(k).
**Contact your tax professional to confirm details
Beyond higher contribution limits, building a custom Solo(k) provides additional benefits.
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The only exception to the owner-only plan is a spouse, if they earn income from the business.
You can open Roth and Traditional accounts to help accomplish several tax strategies:
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Traditional 401(k): Contributions are made pre-tax, reducing taxable income for the year
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Roth 401(k): Contributions are made with after-tax dollars
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Taxes on qualified distributions in retirement:
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Traditional 401(k): Qualified distributions are taxed at ordinary income rates
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Roth 401(k): Qualified distributions are tax-free​​
You have the ability to permit loans from your plan.​​
*If you've reached your employee and employer contribution limits, you have the ability to make additional after-tax contributions to the plan. You may then do an in-plan Roth conversion with these after-tax funds, completing the Mega Backdoor Roth.​
You can consolidate old employer-sponsored accounts, as well as Traditional IRAs. Please note - once your Solo(k) balance is above $250,000, you will be required to file tax form 5500-EZ for your owner-only plan.
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This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice.
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*IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
2025 Individual 401(K) Annual Contribution Deadlines
Contribution dates depend on your business entity; please verify with your tax professional.
Annual contributions to the plan must be made by your business tax filing date plus extensions.
Plan establishment notes and deadlines
To establish a plan you must have an EIN, not a Social Security number. In first year, plan must be established by December 31st. Contribution deadlines may be different in the year the plan is established.
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All employers can sign and adopt a new Individual 401k plan as late as their tax return, plus extensions. Only employer (ER) contributions can be funded and treated as being taxable for the prior year.
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Sole proprietor or Single-member LLC can sign and adpot a new Individual 401k plan as late as the tax return date, excluding extensions. They can fully fund their plan to include employer contributions and retroactive salary deferrals for the prior tax year.
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This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. **Contact your tax professional to confirm details.