The One-Person 401(k) Innovative Retirement Savings Opportunity for the One-Person Business

Table of Contents

• Introduction
  
• What are the benefits of a One-Person 401(k)?
  
• Build vital retirement savings
  
• Talk to us
  

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Introduction

Want to boost your retirement savings—potentially up to $40,000 annually? Consider taking advantage of the generous contribution limit available through the One-Person 401(k). It's a Profit Sharing Plan with a 401(k) feature designed for sole proprietorships and corporations with no employees other than the owner and the owner's spouse.

*Available after Jan.1, 2002

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What are the benefits of a One-Person 401(k)?

Generous Contribution Limits. Beginning in 2002, you may contribute up to $40,000 in the plan each year with a combination of deferrals and profit sharing contributions ($41,000 if you are age 50 or older). These increased limits are a result of the Economic Growth and Tax Relief Reconciliation Act of 2001.
Flexibility. The profit sharing component is discretionary—you do not have to make a contribution every year.
Vesting. You are 100% vested immediately.
Loans. Loans are permitted.
Low Cost. Costs for a One-Person 401(k) are substantially less than a traditional 401(k). Typically one is looking at costs like the following:

• One-time setup fee: $150
  
• Annual administration fee: $150: Other fees may apply for distributions, loans, hardship withdrawals, QDROs and amendments.
  
• Form 5500 (if necessary): $250: Form 5500 is required if assets exceed $100,000.
  

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Build vital retirement savings

Retirement is expensive. Taking advantage of a more generous contribution limit provides the opportunity to put more money away for your future-giving you the potential to accumulate retirement resources faster.

For example, let's assume Jim earned $116,000 annually (Compensation is W-2 income for incorporated businesses or earned income for unincorporated businesses) and wanted to save as much as he could for retirement. In 2001, he would have been able to contribute a maximum of $15,825 (Total employer contributions to the plan cannot exceed 15% of total eligible compensation-Employer contributions include employee deferrals) to his defined contribution plan. In 2002, he has the potential to contribute $40,000 (Total employer contributions to the plan cannot exceed 25% of total eligible compensation-Employer contributions exclude employee deferrals.)—that's $24,175 more than he would have been permitted to contribute in 2001.

401(k) Plan Limits: 2001 vs. 2002: This hypothetical example shows how much more an investor earning $116,000 annually can save by making the maximum contribution to a 401(k) plan in 2002.

	2001	2002
Annual Compensation	$116,000	$116,000
Maximum Contributions
Elective Deferrals	10,500	11,000
Employer Contributions	5,325	29,000
Total Contribution	$15,825	$40,000

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Talk to us

To learn more about the full impact of the new tax bill on your savings potential and how a One-Person 401(k) fits into your overall retirement planning, talk to us (800-783-6005, ext. 202 (John Garven)) or email us indicating what your level of interest is.

Tax reform is effective Jan. 1, 2002. This information is not intended as tax advice and is not meant to replace the counsel of your tax advisor. Please consult your tax advisor about your particular situation.

See also 401(k)

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