Individual 401(k) Plan: Traditional and Roth

You can make substantial contributions toward your retirement while receiving many of the same benefits of a conventional 401(k). And as the owner, you can contribute both as the employer and an employee.

Who is eligible for an Individual 401(k) plan?

An Individual 401(k) plan is available to self-employed individuals and business owners, including sole proprietors, owner-only corporations, partnerships, and independent consultants with no employees other than a spouse.

What are the benefits of an Individual 401(k) plan?

Every Schwab account comes with one-on-one investment help and guidance. With this account, you'll also get:

  • Higher potential contribution limits than SEP IRA and profit-sharing plans
  • Ability to make profit-sharing contributions and salary deferrals
  • Flexible annual contributions
  • Retirement planning tools and resources
  • 24/7 service and support

What are the tax implications of an Individual 401(k) plan?

Tax implications vary for traditional and Roth plans:

  • Contributions to a traditional Individual 401(k) plan are generally tax deductible.
  • Contributions to a Roth Individual 401(k) plan are after-tax salary deferrals.
  • For a traditional Individual 401(k), earnings grow tax-deferred and assets are not taxed until they are withdrawn in retirement.
  • Qualified Roth distributions are tax-free if you are over age 59½ and have held the account for over 5 years.

What are the pricing details for an Individual 401(k) plan?

There is no fee to open or maintain an account at Schwab.

  • Minimum opening deposit: $0.
  • $0 account open or maintenance fees. Other account fees, fund expenses, and brokerage commissions may apply.1

Find out more about our fees and minimums.

Want to learn more about Schwab's Individual 401(k) plans?

Ready to get started?

Follow these steps to build, manage, and make contributions to your retirement plan.

Step 1

Establish your Individual 401(k) plan.

Here are all the documents you'll need to set up your plan.

Note: To establish your plan, you will need an Employer Identification Number (EIN) or a Social Security Number (SSN) if a sole proprietor is acceptable.

Complete & return to Schwab

Documents for your records

Step 2

Manage your plan and start making contributions.

Complete & return to Schwab

Documents for your records

Common questions

If you have a specific question that's not answered here, please call us at 866-855-6637.

Plan accounts are funded with a combination of traditional and designated Roth salary deferrals and annual profit-sharing contributions to the traditional 401(k). Vesting is immediate, and participants can direct how contributions are invested. Individual 401(k) plans do not need to be funded annually.

New Funding feature: Direct Deposit
Now you can make salary deferral contributions via direct deposit. Log onto to your account on schwab.com > Move Money > Routing Numbers & Direct Deposit for instructions on setting up online transfers from your external bank site into your Schwab Individual 401(k) account.

Note: Direct Deposit is only for salary deferral contributions. All employer contributions to an Individual 401(k) must continue to be made by check, wire, or journal (if applicable). Additionally, please be aware that employer contributions cannot be made into a Roth Individual 401(k).

contribution limits

Contributions to an Individual 401(k) can be higher than contributions to other types of retirement plans.

You can fund your account as both the employer and the employee with the following: Annual profit-sharing contributions of up to 25% of your compensation or 20% of your net self-employment income and elective salary deferrals + catch-ups.

2025 2024
Maximum elective deferral $23,500 $23,000
Catch-up contribution, ages 50 - 59 OR 64 or older $7,500 $7,500
Enhanced catch-up contribution, ages 60-63 $11,250 $7,500
Maximum annual limit* $70,000 $69,000

SECURE 2.0 Act allows business owners to both establish an Individual 401(k) and make retroactive employer contributions until tax filing deadline plus extensions. Unincorporated business owners have until tax filing deadline, excluding extensions, to make retroactive elective deferrals. Generally, if your business is incorporated, you must make your deferral contributions in the same tax year.

The main difference between a rollover and a transfer is where the money is held before it's moved to Schwab.

  • A rollover is a non-taxable distribution from a prior employer's plan, generally you will need to complete the prior plan's paperwork to initiate a rollover. You can also rollover an IRA into an Individual 401(k) but you cannot rollover a Roth IRA into a Roth Individual 401(k).
  • A transfer is a non-taxable trustee to trustee transfer from a like titled account at another firm, for example John Doe Individual 401(k) to John Doe Individual 401(k). Generally, you will need to complete the Schwab transfer form once your account is open. Often the prior firm will require their paperwork, so to prevent delays it is advisable you contact them.

Once your Individual 401(k) and/or Roth Individual 401(k) is established you will need to take the following steps to transfer it:

  • For a like titled transfer complete the TOA form Transfer Your Account to Schwab | Charles Schwab.  Note: If you have both an Individual 401k and a Roth Individual 401k you will need to submit one form for each account.
  • For a rollover from a prior employer generally you do not need to complete this paperwork, you should contact your prior plan administrator.

You'll need to file IRS Form 5500 annually when your plan assets reach or exceed $250,000, or when you terminate your plan.

You must have a triggering event—generally either termination of employment or retirement—to take a distribution.

Traditional Individual 401(k)

  • Generally, all withdrawals are subject to taxes.
  • Withdrawals before age 59½ may be subject to a 10% penalty.
  • Distributions are subject to a mandatory 20% federal tax withholding, except for Required Minimum Distributions (RMDs), hardship withdrawals, certain qualified exceptions, and direct rollovers.
  • If you own 5% or more of the business, you must begin taking RMDs annually, starting with the year you reach age 73. If you don't make withdrawals, you may be subject to a penalty.

Under SECURE 2.0, if you don't take your RMD by the IRS deadline, a 25% excise tax on insufficient or late RMD withdrawals applies. If the RMD is corrected timely, the penalty can be reduced to 10%. Follow the IRS guidelines and consult your tax advisor.

Roth Individual 401(k)

Qualified Distributions: Always tax-free.

  • You can start making qualified distributions from a Roth 401(k) once you have satisfied two conditions: You are age 59½ or older, and you have met the five-year rule.

Non-Qualified Distributions: Earnings are generally subject to taxes.

  • If you are under 59½ and/or have not met the 5-year rule, you may have to pay income tax, and if you are under 59½, you may incur a 10% penalty.
  • Early withdrawals must include both contributions and earnings prorated based on the ratio of contributions to earnings in the account.
  • Earnings are subject to a mandatory 20% federal tax withholding, except for hardship withdrawals, certain qualified exceptions, and direct rollovers.

SECURE 2.0 has eliminated RMDs for Roth 401(k) plans starting in 2024.

You may not take loans from your Individual 401(k) account.

Please refer to the IRS page on Individual 401(k) plans link for more information.