Solo 401k Deadline for 2020

Submitted by Steve Ellis on Thu, 2021-02-25 14:53

My understanding is that The SECURE Act extended the establishment deadline on 401k plans for 2020.
You may be able to make this effective for 2020 if done by March 15 of 2021.
BUT…. the IRS has not yet updated its prior guidelines stating that employee contributions must be elected by the end of the year.
Is this the case? Any more info available on this subject.
I have a client wanting to set up a solo 401k now and be able to contribute for the 2020 tax year. Can he do it?



Submitted by Alan - IRA critic on Thu, 2021-02-25 15:42

Yes, a 2020 plan may be adopted by the filing due date including extensions. The following is copied from Sec 201 of the Secure Act:
ADOPTION OF PLAN.—If an employer adopts a stock bonus, pension, profit-sharing, or annuity plan after the close of a taxable year but before the time prescribed by law for filing the return of the employer for the taxable year (including extensions thereof), the employer may elect to treat the plan as having been adopted as of the last day of the taxable year.”.(b) Effective Date.—The amendments made by this section shall apply to plans adopted for taxable years beginning after December 31, 2019.

Submitted by Steve Ellis on Thu, 2021-02-25 17:03

That was very helpful. Thank you for finding that section of the SECURE Act.

Submitted by Terri Crinnion on Thu, 2021-02-25 20:02

Does this mean that the employee portion ($19,500) can be contributed in 2021 also, before the deadline to file taxes (4/15?)

Submitted by Alan - IRA critic on Thu, 2021-02-25 21:07

No, given that these plans are all entirely employer-funded, the biggest benefactors of this change are likely to be business owners planning for their own tax liabilities, and who have few or no employees for whom plan contributions would have to be made.

Submitted by William Tuttle on Fri, 2021-02-26 03:33

A 401k is a profit sharing plan that also has a cash or deferred arrangement.
A business now has until their tax filing deadline including extensions to adopt a 401k.
However, the Tax Code requirement that an employee deferral election must be completed by 12/31 to make employee deferrals was not changed. There is no IRS substantial authority contrary to this. 
If a 401k is adopted after 12/31, but before the tax filing deadline including extensions
Employer Profit Sharing contributions for that tax year can be made until the tax deadline including extensions.
No employee deferrals can be made for that tax year.

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