How to open an individual 401(k) plan

How to open an individual 401(k) plan

An individual 401(k) is a retirement plan designed for self-employed individuals and owner-only businesses (including corporations, partnerships, and sole proprietorships) and their spouses. An individual 401(k) plan features many of the same benefits as a traditional 401(k) and is easier to manage and administer.

You can open an individual 401(k) plan using DocuSign® or paper forms. Refer to Individual 401(k) Funding Options to learn about the funding methods.

All processes
  • A completed Individual 401(k) Adoption Agreement, the Trustee and Custodial Agreement, and an Individual 401(k) Account Application (use the application instructions for more information). 
    • Note: The Trustee and Custodial Agreement is attached to the Individual 401(k) Adoption Agreement. 
    • If establishing both an Individual 401(k) and a Roth Individual 401(k) a separate application is required for each account. Clients are not required to open both.
    • Your firm name, master account number, and contact information.
    • Information for the business, including employer name, employer identification number (EIN), street address (P.O. boxes or investment advisor addresses are not accepted), and phone number.
    • Sole Proprietors can establish the plan using their SSN.
    • Information for the plan, including plan name, three-digit plan sequence number (the business determines this number, beginning with 001 for the first plan established), the plan identification number Tooltip if applicable. This is the tax id number assigned to the plan. Do not use the employee SSN or the tax id of the business.
    • Information for the beneficiary, including name, relationship, Social Security number or taxpayer identification number, birth date, and consent of spouse, if applicable.
  • Adobe® Reader® or Adobe Acrobat® 7.0 or higher (download the latest version on the Adobe website).
  • If the trustee or participant is affiliated with a member firm of an exchange or FINRA and Rule 3210 applies, a FINRA Rule 3210 Consent Letter.
In addition to the information above, the following may be required:
Additional features

For additional features requested by the client:

Account opening method

If using DocuSign to submit forms:

  • For existing Schwab clients, a complete Schwab Advisor Center® profile with the account holder’s current email address and mobile phone number
  • For new-to-Schwab clients, the email address and mobile phone number
  • All clients must use either Alliance Authentication (only available when starting the envelope within Schwab Advisor Center), or, both text message (SMS) authentication and Knowledge Based Authentication (KBA) for DocuSign (available in both Schwab Advisor Center and the DocuSign Console)

For details, see How to use DocuSign.

  • Use the Open Account–Individual 401K Account form to complete the workflow.

The form package includes forms commonly used to open an account. Verify the following forms are listed and, if not, click Add More Schwab Forms:

  • Adoption Agreement—Employers must complete, sign, and return to Schwab.
  • Account Application—Each participant and their spouse or eligible partner(s) must complete and sign. Account holder must return to Schwab.
  • If establishing both an Individual 401(k) and a Roth Individual 401(k) a separate application is required for each account.  
  • Trustee and Custodial Agreement—Employer or Trustee must complete, sign, and return to Schwab. 
  • Summary Description—Account holders must complete and provide a photocopy of the form to each participant. Do not return to Schwab.
  • Elective Deferral Agreement—Each participant, including the employer, must complete this form to specify their salary deferral amount. Employers should keep the original completed forms and provide a photocopy to each participant. Do not return to Schwab.

This process may be used to open an individual 401(k) plan using paper forms.

  1. Select Open Account – Individual 401K Account within the Forms library page on Schwab Advisor Center.
  2. Expand the list to view the forms. Click Select, and then select Open PDF for each of the following forms as well as any other applicable forms:
    • Adoption Agreement—Employers must complete, sign, and return to Schwab.
    • Trustee and Custodial Agreement—Employer or Trustee must complete, sign, and return to Schwab. 
    • Account Application—Each participant and their spouse or eligible partner(s) must complete and sign. Account holder must return to Schwab.
    • If establishing both an Individual 401(k) and a Roth Individual 401(k) a separate application is required for each account.  
    • Summary Description—Account holders must complete and provide a photocopy of the form to each participant. Do not return to Schwab.
    • Elective Deferral Agreement—Each participant, including the employer, must complete this form to specify their salary deferral amount. Employers should keep the original completed forms and provide a photocopy to each participant. Do not return to Schwab.
  3. Complete all necessary fields and ensure all additional features the client requested have been added.
  4. Print the form(s) and obtain signatures from each account holder and each participant. Send the signed form(s) to your Schwab service team via a Schwab Advisor Center service request.

Once you have submitted your request:

  • If the forms were submitted using DocuSign, review the What's next? section of How to use DocuSign.
  • Participants can elect to change their contribution amount by completing the Individual 401(k) Elective Deferral Agreement and returning it to their employer. Participants should keep this form for their records. This form is not returned to Schwab.
  • If any paperwork authorizing an advisor to manage an account is incomplete or missing, Schwab will temporarily set up the account with a special Schwab Advisor Services™ master account, but not a firm’s master account. Advisors have 90 days to provide missing paperwork or signatures. After 90 days, the account is no longer considered a Schwab Advisor Services account and will be transferred to the Individual Investor Division.
  • Schwab will send your client standard communications about their individual 401(k) plan once it's been opened.
  • The account holder should consult with their tax advisor if they have any questions about tax implications.
  • If you have questions about opening individual 401(k) plans, call your service team.

Go to the Forms library on Schwab Advisor Center and select the forms below.

Form: Individual 401(k) Account Application
Form: Individual 401(k) Adoption Agreement
Form: Individual 401(k) Elective Deferral Agreement
Form: Individual 401(k) Summary Plan Description
Form: Limited Power of Attorney (Investment Advisor LPOA)
Form: Options Trading and Margin Application
Form: Power of Attorney (Individual POA)
Resource: irs.gov

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, corporations, partnerships, and tax-exempt organizations with no employees other than a spouse. Partners must have a minimum 5% business share to be eligible.

How is an individual 401(k) plan funded?
Individual 401(k) plans are funded with a combination of pre-tax and/or designated Roth salary deferrals and annual profit-sharing contributions. Vesting is immediate, and participants can direct how contributions are invested. Individual 401(k) plans do not need to be funded annually. Refer to Individual 401(k) Funding Options.

What are the tax advantages of an individual 401(k) plan?
Pre-tax contributions to an individual 401(k) plan are tax-deductible. Earnings grow tax-deferred, and assets are not taxed until they are withdrawn in retirement. Designated Roth (after-tax) contributions grow tax-deferred, and distributions are tax-free if certain conditions are met.

What does my client need to know about administering their individual 401(k) plan?
Your client will need to file IRS Form 5500 annually when their plan assets reach or exceed $250,000.

What additional features are available for individual 401(k) plans?
Your client's individual 401(k)/Roth 401(k) plan is eligible for the following:

  • Limited power of attorney, limited power of attorney for a financial advisor, and full power of attorney
  • Covered  options Tooltip  only (certain exceptions apply)

Withdrawal power financial advisor, margins, Schwab MoneyLink®, Schwab One® checks, and Visa® debit cards are not available for individual 401(k) plans.

When should my client establish and fund the plan?
Your client must establish the individual 401(k) plan by the tax-filing deadline or by extension date. Salary deferrals for an incorporated business must be made by the end of the business tax year. For an unincorporated business clients have until the tax-filing deadline or extension deadline for existing plans. Profit-sharing contributions are due by the tax-filing date or extension deadline.

How can I prevent delays in the application process?
To prevent delays with your client's individual 401(k) application, avoid the following:

  • Leaving any required fields blank
  • Leaving any questions or fields pertaining to Rules 407 and 3050 blank
  • Missing or illegible signatures and signature dates

How to add features to an account
How to add power of attorney to an account
How to use DocuSign
Introduction to cash and cash investments
Introduction to individual 401(k) plans
Introduction to options trading
Tax withholding election (TWE) FAQs