What is Individual 401k plan?

An Individual 401k is a type of self employed retirement plan that is sometimes referred to as an "Solo 401k", "Self Employed 401k” and " Single(k)" ".

What  exactly is an Individual 401k?

An  Individual 401k is the latest and most exciting types retirement plan to benefit the self employed, thanks to the recent tax law implemented by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)(401k Tax Implications). This tax law became effective beginning January 1, 2002 and gives significant advantages to small businesses whose only employee is the owner or the owner and their spouse. These self employed business owners can establish an Individual 401k plan and can also take advantage of this powerful retirement savings Plan like others.

What makes the Individual 401k unique is that compared to other self employed retirement plans greater contributions may be made at identical income levels  by the person, therefore maximizing retirement fund and valuable tax deductions. Individual 401k contribution limits for an employee are $49,000 in 2011 or $50,000 in 2012 ($54,500 in 2011 or $55,500 in 2012 if age 50 or older).

Also, an Individual 401k allows the flexibility to borrow loans against the value of your 401k. Tax free loans (up to 50% of the total 401k value with a $50,000 maximum) are permitted or allowed in an Individual 401k plan.

 The Benefits of Individual 401k Plan

The Individual 401k plan has lots of benefits for small business owners and the self employed.

•  Good Retirement Plan Consolidation.
•  Higher 401k Contribution Limits.
• Tax Deductible Contributions.
•  A Tax Deferred Growth.
• The Contribution Flexibility.
•  You can Access to Tax Free Loans.
•  Get a Cost Effective Administration.

Individual 401k Contribution Limits

Compared to other retirement plans you may be able to make greater contributions at identical income levels, therefore maximizing your retirement contributions and valuable tax deductions.

Individual 401k contribution limits  or 401k Limits are $49,000 in 2011 or $50,000 in 2012 ($54,500 in 2011 or $55,500 in 2012 if age 50 or older). The annual or yearly Individual 401k contribution consists of 2 parts a salary deferral contribution and a profit sharing contribution. The total allowable contribution adds these two parts together to get to the maximum Individual 401k contribution limit.

Contribution calculation for an S or C corporation or an LLC taxed as a corporation  for Individual 401k

1.      Salary Deferral Contribution
In 2012,100% of W-2 earnings up to the maximum of $17,000 or $22,500 if age fifty or older can be contributed to an Individual 401k (2011 limits are $16,500 or $22,000 if age Fifty or older).

2.      Profit Sharing Contribution
A profit sharing contribution up to 25% of W-2 earnings  or income can be contributed into an Individual 401k.

3.   Individual 401k Calculator

To determine your annual retirement contribution you could make based on your income use the Individual 401k calculator.