Individual 401(k) Plan with Traditional and Roth 401(k) contributions

• Individual 401(k) allows for both, salary deferral and profit sharing contributions
• Salary deferrals can be split between the pre-tax Individual 401(k) account and the after-tax Roth Individual 401(k) account
• The deadline to amend a plan for SECURE 2.0 Act provisions is December 31, 2026. Until then, if an employer chooses to implement any SECURE 2.0 Act provisions, including the provision allowing Roth employer contributions, the employer must operate the plan in compliance with those provisions, including any notice provisions, and should formally document and reflect any elections the employer has made with respect to the plan in their records for the plan.
• Additionally, please note that the IRS requires the employer to report these contributions on Form 1099-R. E*TRADE from Morgan Stanley will not provide this reporting to the IRS. According to the Qualified Retirement Plan Service Agreement, our tax reporting duties for Form 1099-R are limited to distributions from the account. It is the responsibility of the employer to handle tax reporting for any Roth employer contributions. For further questions about the reporting of Roth employer contributions, we recommend consulting with your tax advisor for guidance.

Yes. However, total annual employee contributions cannot exceed the 401(k) contribution limits ($23,500 for 2025 or $31,000 if age 50 or older for 2025). Other restrictions and rules may apply in this situation; consult your tax and legal advisor.

If employees are hired, generally, they would have to be included in the plan, which will add more complex plan administration rules, expenses, and may cause the need to terminate the Individual 401(k) plan. The E*TRADE from Morgan Stanley Individual 401(k) Plan offering is available only for (a) self-employed individuals, (b) small businesses with no employees other than the business owner or the business owner and their spouse, or (c) partners in a partnership or partners and their spouses. If the plan sponsor's circumstances change, so that the plan sponsor is no longer eligible for the E*TRADE from Morgan Stanley Individual 401(k) plan, the plan sponsor will likely need to freeze the plan or terminate the plan. A business owner may want to consider other retirement plans if planning on hiring employees in the future. Consider using the Small Business Plan Selector Tool to see other options.

Yes. Generally, each self-employed partner will be able to open a separate Individual 401(k) plan.

Business owners are generally exempt from filing IRS Form 5500 if the Individual 401(k) plan has less than $250,000 in assets at the end of the year. Plans with $250,000 or more in assets at the end of the year are generally required to file Form 5500.