SOLO 401(K) deadline for the employee contribution

Submitted by Thomas G. Blair on Mon, 2020-01-27 16:53

I’ve had a solo 401(k) for a few years and have been making contributions over the years. My accountant just told me that I was supposed to make my “employee” contribution by 12/31 last year but I thought that I had until my tax filing deadline to do so? Do you know if the employee contribution to a solo 401(k) must be made by the end of the calendar year? Thank you. Tommy



Submitted by Alan - IRA critic on Mon, 2020-01-27 18:22

What is your business entity?

Submitted by Thomas G. Blair on Mon, 2020-01-27 20:53

S-corporation

Submitted by William Tuttle on Tue, 2020-01-28 14:46

  • An S-Corp’s 2% W-2 shareholder-employee’s  deferrals must be deducted from compensation not already received with a pay date on or before 12/31.
  • A one-participant 401k plan is not an ERISA qualified plan and is not subject to the DOL 7 business day deposit requirement. I believe it is subject to the IRS 15 business day deposit requirement. This would have been 1/23/2020 for a 12/31/2019 pay date.
  • However, the IRS is unlikely to be concerned with this small delay as you have only disadvantaged yourself. If you have additional business profits available you could run a 12/31 payroll to cover the $19K deferral and FICA. You will want to do this soon, because you need to file your W-2 by 1/31.
  • The bigger problem is any prior years. Especially, if you deposited employee deferrals without deducting them from your compensation and reporting them on your W-2.
  • This would be a serious 401k plan error. You would need to consult with a retirement plan specialist. It could very well be that they would not be valid 401k plan contributions.

Submitted by Al Smith on Thu, 2020-02-20 00:33

How about this same question for a sole-proprietor / single-member LLC?  I’ve read that as long as you technically “elect” your employee contribution by 12/31, you have until tax filing to actually make the contribution.  That means you essentially have a 4/15 or 10/15 (if extended) deadline for both the employee and employer share of the contribution.  Is that correct?

Submitted by William Tuttle on Thu, 2020-02-20 01:04

A self-employed individual has until their tax filing deadline (4/15) including extensions (10/15) to make both employee deferrals and employer contributions. However, employee deferrals can only occur and must be based a written employee deferral election completed by 12/31 and filed in the 401k plan’s records.

Submitted by Al Smith on Thu, 2020-02-20 01:18

Thanks for confirming!

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