RETROACTIVE SOLO 401(K) INQUIRY Follow up Question

Submitted by Kevin O'Hearn on Wed, 2024-01-24 18:37

Hello.

I submitted the following inquiry on 12/20/2023 11:50 AM EST

https://www.irahelp.com/forums/ira-discussion-forum

RETROACTIVE SOLO 401(K) INQUIRY

We had one follow up question on this subject:

Is it IRAHelps’s stance that outside of this first year exception, the deadline for employee contributions to a Solo 401k is normally December 31st ?There is lots of info out there that says it’s the tax filing deadline, but if that was the case, there wouldn’t be a need for this new retroactive allowance.



Submitted by William Tuttle on Thu, 2024-01-25 01:20

IRA Help simply sponsors this forum. They do take any stance on any post made here. They are simply the “mostly” informed opinion of other individual forum members. Who do not represent IRA HELP.

  • Let’s back up and review what I already explained in that previous thread.
  • A self-employed individual has to make a 401k employee deferral election by 12/31.
  • Then they have until their tax filing deadline including extentions to make both employee deferrals and employer contributions.
  • When the original SECURE ACT changed the 12/31 adoption deadline to the employer’s tax filing deadline including extensions. It did not change the employee deferral election deadline. If adopted after 12/31 employer contributions could be made up to the tax filing deadline, but no employee deferrals could be made because no employee deferral election could have been made 
  • The SECURE ACT 2.0 change just provide relief for that specific circumstance.
  • If you have used that provision for 2022 contributions, the standard provisions apply.
  • If a self-employed individual with an adopted one-participant plan makes an employee deferral election by 12/31. They have until their tax filing deadline including extensions to make employer deferrals and employer contributions.

Submitted by Kevin O'Hearn on Thu, 2024-01-25 17:45

Thanks for the clarification. How does someone make a “deferral election” without physically making the deferral contribution to the plan?

Submitted by William Tuttle on Fri, 2024-01-26 04:08

  • While there is no IRS deferral election form, most one-participant 401k providers have a sample form.
  • Such a Form is not required, but the plan identification, individual identification and deferral election is required.
  • The deferral election must be a fixed dollar amount, a fixed percentage of self-employed earned income or some other deterministic method based on self-employed earned income.
  • The deferral election must be written by 12/31 and retained in your records.

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