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Setting up a Qualified Plan: Retirement Plans for Business Owners (2025 IRS Guide)

This guide covers “Setting up a Qualified Plan” within retirement plans for business owners. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 560 (2025), Retirement Plans for Small Business, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

  • Kinds of plans

  • Qualification rules

  • Setting up a qualified plan

  • Minimum funding requirement

  • Contributions

  • Employer deduction

  • Elective deferrals (401(k) plans)

  • Qualified Roth contribution program

  • Distributions

  • Prohibited transactions

  • Reporting requirements

Publications

  • 575 Pension and Annuity Income

  • 590-A Contributions to Individual Retirement Arrangements (IRAs)

  • 590-B Distributions from Individual Retirement Arrangements (IRAs)

  • 3066 Have you had your check-up this year? for Retirement Plans

  • 3998 Choosing a Retirement Solution for Your Small Business

  • 4222 401(k) Plans for Small Businesses

  • 4530 Designated Roth Accounts under a 401(k), 403(b) or governmental 457(b) plan

  • 4531 401(k) Plan Checklist

  • 4674 Automatic Enrollment 401(k) Plans for Small Businesses

  • 4806 Profit Sharing Plans for Small Businesses

Forms (and Instructions)

  • W-2 Wage and Tax Statement

  • Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc.

  • 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

  • 1040 U.S. Individual Income Tax Return

  • 1040-SR U.S. Tax Return for Seniors

  • Schedule C (Form 1040) Profit or Loss From Business

  • Schedule F (Form 1040) Profit or Loss From Farming

  • 5300 Application for Determination for Employee Benefit Plan

  • 5310 Application for Determination for Terminating Plan

  • 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts

  • 5330 Return of Excise Taxes Related to Employee Benefit Plans

  • 5500 Annual Return/Report of Employee Benefit Plan

  • 5500-EZ Annual Return of A One-Participant (Owners/Partners and Their Spouses) Retirement Plan or A Foreign Plan

  • 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan

  • 8717 User Fee for Employee Plan Determination Letter Request

  • 8880 Credit for Qualified Retirement Savings Contributions

  • 8881 Credit for Small Employer Pension Plan Startup Costs

  • 8955-SSA Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits

These qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H.R. 10 plans. A sole proprietor or a partnership can set up one of these plans. A common-law employee or a partner can't set up one of these plans. The plans described here can also be set up and maintained by employers that are corporations. All of the rules discussed here apply to corporations except where specifically limited to the self-employed.

The plan must be for the exclusive benefit of employees or their beneficiaries. These qualified plans can include coverage for a self-employed individual.

As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. The contributions (and earnings and gains on them) are generally tax free until distributed by the plan.

Setting up a Qualified Plan

There are two basic steps in setting up a qualified plan. First, you adopt a written plan. Then, you invest the plan assets.

You, the employer, are responsible for setting up and maintaining the plan.

Tip:

If you are self-employed, it isn't necessary to have employees besides yourself to sponsor and set up a qualified plan. If you have employees, see Participation under Qualification Rules, earlier.

Set-up deadline.

To take a deduction for contributions for a tax year, your plan must be set up (adopted) by the last day of that year. If you are a sole proprietor with a new section 401(k) plan that you adopted after the end of the tax year that ends after or with the first plan year, and you are the only participant, your elective deferrals must be paid to the plan before the time for filing your return for that tax year (determined without regard to any extensions) in order for the elective deferrals to be treated as having been made by the end of the first plan year.

Adopting a Written Plan

You must adopt a written plan. The plan can be an IRS pre-approved plan offered by a sponsoring organization. Or it can be an individually designed plan.

Written plan requirement.

To qualify, the plan you set up must be in writing and must be communicated to your employees. The plan's provisions must be stated in the plan. It isn't sufficient for the plan to merely refer to a requirement of the Internal Revenue Code.

IRS pre-approved plans.

Most qualified plans follow a standard form of plan approved by the IRS. An IRS pre-approved plan is a plan, including a plan covering self-employed individuals, that is made available by a provider for adoption by employers. Under the prior IRS pre-approved plan program, a plan could be a master plan, a prototype plan, or a volume submitter plan. Under the restructured program, the three plan types were combined into one type called a pre-approved plan. IRS pre-approved plans include both standardized plans and nonstandardized plans. An IRS pre-approved plan may use a single funding medium, for example, a trust or custodial account document, for the joint use of all adopting employers or separate funding mediums established for each adopting employer. An IRS pre-approved plan may consist of an adoption agreement plan or a single document plan. For more information about IRS pre-approved plans, see Revenue Procedure 2017-41, 2017-29 I.R.B. 92, available at IRS.gov/irb/2017-29_IRB#RP-2017-41.

Plan providers.

The following organizations can generally provide IRS pre-approved plans.

  • Banks (including some savings and loan associations and federally insured credit unions).

  • Trade or professional organizations.

  • Insurance companies.

  • Mutual funds.

  • Law firms.

  • Third-party administrators.

Individually designed plan.

If you prefer, you can set up an individually designed plan to meet specific needs. Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. You may need professional help for this. See Revenue Procedure 2024-4, 2024-1 I.R.B. 160, available at IRS.gov/irb/2024-4_IRB, as annually updated, that may help you decide whether to apply for approval.

User fee.

The fee mentioned earlier for requesting a determination letter doesn't apply to employers who have 100 or fewer employees who received at least $5,000 of compensation from the employer for the preceding year. At least one of them must be a non-highly compensated employee participating in the plan. The fee doesn't apply to requests made by the later of the following dates.

  • The end of the fifth plan year the plan is in effect.

  • The end of any remedial amendment period for the plan that begins within the first 5 plan years.

The request can't be made by the provider of an IRS pre-approved plan that intends to market to participating employers.

For more information about whether the user fee applies, see Revenue Procedure 2020-4, 2020-1 I.R.B. 148, available at IRS.gov/irb/2020-01_IRB, as may be annually updated; Notice 2017-1, 2017-2 I.R.B. 367, available at IRS.gov/irb/2017-02_IRB; and Form 8717.

Investing Plan Assets

In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets.

  • You can establish a trust or custodial account to invest the funds.

  • You, the trust, or the custodial account can buy an annuity contract from an insurance company. Life insurance can be included only if it is incidental to the retirement benefits.

You set up a trust by a legal instrument (written document). You may need professional help to do this.

You can set up a custodial account with a bank, savings and loan association, credit union, or other person who can act as the plan trustee.

You don't need a trust or custodial account, although you can have one, to invest the plan's funds in annuity contracts or face-amount certificates. If anyone other than a trustee holds them, however, the contracts or certificates must state they aren't transferable.

Other plan requirements.

For information on other important plan requirements, see Qualification Rules, earlier in this chapter.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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