Is an Individual 401(k) Right for Your Business?

As a small business owner, you're constantly balancing immediate business needs with long-term financial goals. One of the most important steps you can take for your financial future is choosing the right retirement plan. For many owner-only businesses or those with minimal employees, an individual 401(k) can offer a powerful combination of tax benefits and potential savings. Below are some of the key advantages of how an individual 401(k) could align with your retirement planning strategy.

• Owner-only businesses
• Any business that employs just owners and their immediate family members (i.e., spouses and minor children) – including C corporations, S corporations, partnerships and sole proprietors
• Any business that employs the owner and other part-time employees where the part-time employees may be excluded from plan participation
• Defined benefit plan sponsors who would like to contribute even more than what they can to their existing plan by making a 401(k) salary deferral

An Individual 401(k) plan can provide tax deductions on employer contributions for businesses and on salary deferred by employees, sole proprietors, and other small business owners. These traditional contributions grow on a tax deferred basis, meaning that no income tax is owed by the 401(k) participant until the money is withdrawn from the account.

Individuals can also opt to defer salary on an after-tax basis to a designated Roth account in the Individual 401(k). Unlike a Roth IRA, which precludes individuals above certain income limits from making a contribution, all Individual 401(k) participants are eligible to defer salary to the designated Roth 401(k) account provided the Individual 401(k) document allows for such deferrals.

As a small business owner, planning for your retirement is just as important as managing your day-to-day operations. An Individual 401(k) can offer significant tax benefits, flexibility, and opportunities for growth, making it an excellent option for owner-only businesses or those with limited employees. Whether you’re looking to maximize pre-tax contributions, take advantage of after-tax Roth options, or supplement an existing defined benefit plan, an Individual 401(k) might be the key to securing your financial future. 

An Oppenheimer financial professional can help you evaluate if a 401 (k) is best for you and your business. Click here to find an advisor today.