Solo 401(k) Deadlines

Solo 401(k) contribution and plan establishment deadlines vary based on if you are contributing as an employee, an employer, and/or are setting up your first 401(k) plan. Plus, both contribution and plan setup deadlines vary by the business structure of your company (e.g., Sole Proprietor, Partnership, LLC, or Corporation). Knowing these differences helps you maximize your tax benefits within your self-employed 401(k) plan.

Key Takeaways

• Self-employed and owner-only businesses may receive 401(k) benefits by starting a Solo 401(k) plan.

• Small business owners are both the employee and the employer, so they can contribute to their 401(k) plan as both. Different deadlines may apply based on your business structure.

• Sole Proprietors and Single-Member LLCs can typically start a plan and make employee and employer contributions up to their tax deadline. Double check with your provider for exact dates.

• Partnerships, Corporations, and Multi-Member LLCs may make employee contributions up until 12/31 of the current calendar year, and employer contributions until their business tax deadline (assuming a calendar fiscal year).

How Does a Solo 401(k) Work?

Self-employed or owner-only businesses with no full-time employees can start a retirement plan called a Solo 401(k), also known as an Individual 401(k) plan. This includes multi-owner businesses. Solo 401(k)s are great in that you are both the employee and employer, so you can contribute up to the annual maximum contribution limits as both. That’s a lot to put away for a comfortable retirement and might just drop you a tax bracket.

Curious about how much you can contribute? Try our contribution calculator to estimate your Solo 401(k) contribution amount.

What are 401(k) Employee and Employer Contributions?

It is important to understand the two overarching types of 401(k) contributions you can make as an owner-only business, so you can maximize your contributions and tax advantages.

Employee Contributions (Elective Deferrals)

Employee elective deferrals are the type of contribution you can make as the employee of your business. There are two main employee contribution types:

• Pre-tax (traditional)

• Post-tax (Roth)

Each type is taxed differently in the current year and upon withdrawal in retirement. It’s a good idea to consult with a tax professional and also double check that your provider allows Roth contributions before making employee elective deferrals. Remember, you can set aside money in your 401(k) up to the employee maximum contribution limit.

Employer Contributions (Profit Sharing)

Employer contributions, aka employer profit sharing contributions, allow you to contribute as an employer up to the IRS annual contribution limit. You can generally contribute up to 25% of your W-2 compensation (or for Sole Proprietors, ~20% of net self-employment income). Note that profit sharing contributions must always be made pre-tax and are 100% tax deductible.

Solo 401(k) Plan Deadlines

Please note that your Solo 401(k) provider will often have purchase and contribution deadlines earlier than the government deadline to ensure your plan is set up to receive qualifying contributions. It can take days to weeks for providers to set up your plan, so plan on purchasing well in advance.

Can You Start a Solo 401(k) and Contribute Within the Year?

If you are self-employed and starting your first Solo 401(k), you can start your plan up until your tax deadline and still make contributions as an employer.

• For most business types, this date is April 15th.

• For S-Corps and Partnerships, this date is March 15th.

However, the dates can be different for contributions as an employee.

• For Sole Proprietorships and Single-Member LLCs, this date is April 15th.

• For most other business types, this date is December 31st.

Note: Only Sole Proprietorships and Single-Member LLCs can start a Solo 401(k) plan after December 31st and still make employee contributions for the prior year.

However, not all providers let you start a 401(k) plan and contribute up to the IRS deadline. Make sure to check with your provider.

How Solo 401(k) Contribution Deadlines Work

You are both the employee and employer of your Solo 401(k), so different deadlines and amounts apply for each type of contribution.

A good 401(k) provider will make it easy to understand the difference between employee and employer contributions. This helps you avoid going over the maximum limit for each type. They’ll also stay up to date on any new legislation that might affect your deadlines or contribution rules, such as Secure 2.0.

Confused? Our 401(k) experts can walk you through employee/employer contributions and how to set them up for your 401(k) plan. Just give them a call.

Sole Proprietorships and Single-Member LLCs can make both employee and employer contributions until 4/15, if their provider allows.

S-Corps, C-Corps, Partnerships, or Multi-Member LLCs need to set up their plans and make employee contributions by 12/31, if their provider allows. Employer contributions can typically be made by the tax deadline, typically either in March or April.

Managing Your Solo 401(k) Contributions

Solo 401(k) owners typically have the flexibility to make contributions on any given business day. Many choose to set up automated contributions to help them save more consistently and better manage their cash flow. Then, after each quarter or at year end, you can make one-time employer contributions as you understand your business income, savings, and tax management needs for a given year.

Making contributions throughout the year also has a side benefit called dollar cost averaging, which can help build more wealth.

In determining how much you can contribute as an employer, it is typically 25% of W-2 income, around 20% of your net schedule C, or the IRS tax table for your entity type. Generally, it will be 20%-25% of your earnings up to the max contribution limit. You can always contribute up to the employee contribution limit as long as you earn at least that amount.

Finally, if your business is run on a non-calendar fiscal year, plan establishment date deadlines may vary by 401(k) providers. Most businesses choose to run their plan on a calendar year regardless of their fiscal year given annual contribution rule changes and ease of management.

If you’re looking to start a new Solo 401(k), talk to our team and we can help you choose the right product that works for you.

FAQs

What are the two types of Solo 401(k) contributions?

Solo 401(k) plans allow two contribution types:

• Employee Elective Deferrals (the amount you contribute as the “employee”)
• Employer Profit Sharing Contributions (the amount you contribute as the “employer”)

When are Employee Elective Deferrals due?

Thanks to SECURE Act 2.0, Sole Proprietors or Single Member LLCs can contribute as an employee up to the April tax deadline.

For all other business types, deferral elections must be made by 12/31.

When are Employer Profit Sharing Contributions due?

Employer contributions must be funded by your business tax return deadline.

The exact date depends on your business structure:

• Sole Proprietors / Single-Member LLCs taxed as Sole Prop: April 15 of the following year (or October 15 with extension)

• S-Corps, Partnerships, Multi-Member LLCs taxed as S-Corps/Partnerships: March 15 (or September 15 with extension)

• C-Corporations or LLCs taxed as C-Corps: April 15 (or October 15 with extension)

Do I need to have my Solo 401(k) opened before making contributions?

Yes. To make employee deferrals for the year, your Solo 401(k) must be established by December 31. Employer contributions can still be made later, as long as you are within your tax-filing deadline.

Can I change my contribution amounts after year-end?

Employee deferrals: No. The election must be in place by December 31.

Employer profit sharing: Yes. Amounts can be determined and funded up to your tax deadline.

What happens if I miss the deadline?

If you miss:

• Employee deferral deadline: You cannot retroactively make deferrals for that year.

• Employer contribution deadline: You cannot deduct the employer contribution for that tax year. If you file an extension and you miss the extended deadline, you cannot deduct them for that tax year. Consult your tax advisor for more information.

*This is not meant to be tax advice. ShareBuilder 401k does not offer tax or legal advice. Consult with your tax or legal advisor before engaging in specific strategies.