Nobody loves them, but deadlines are nonetheless an important part of "adulting." If you have ever participated in a traditional employer-sponsored 401(k), you likely already know (or have been reminded) that you cannot contribute to these plans beyond the end of the calendar year. What about the solo 401k contribution deadline? Are things different with this type of plan?
Yep. You see, if you don't work for "The Man," the burden is on you to be aware of your contribution deadlines. That's why we have written this little cheat sheet, which will explain your deadlines based on the type of business you own.
Spoiler alert: these deadlines are unlikely to line up neatly with the traditional ones.
If your business is set up as a sole proprietorship, you can make contributions all the way up until your personal tax return is due on April 15th or October 15th. You may choose to make traditional (pre-tax) or Roth (post-tax) contributions to the account. Those interested in making Roth contributions to their Solo-K will want to check to ensure their plan allows for such contributions.
One thing to keep in mind is that regardless of when you make the contributions, you must fill out a form to formally elect the deferrals no later than December 31st, which is generally assumed to be the end of the business year.
Like elective deferrals, profit-sharing contributions share a deadline with your tax filing: either April 15th or October 15th. Calculating profit-sharing contributions accurately is essential. These contributions are based off of your income, which for these purposes is determined by your net earnings. The IRS has helpfully defined net earnings as your earnings minus half of the self-employment tax deduction as well as the Solo-K contribution deductions. Learn more about how much you can contribute from Uncle Sam's handy memo on Solo-K profit sharing.
Using an S-Corporation or C-Corporation structure simplifies contributions because they are simply made through payroll. Typically, this means employees elect to defer and their contributions are automated alongside pay.
Corporations have the luxury of being able to contribute up to 25% of an employee's earnings. These pre-tax contributions are due at the time of business tax filing: either March 15th or September 15th. If the plan allows, employees who wish to may later convert such contributions into Roth contributions.
Still with us? If that seemed like a lot of information, it's because it was. We're here to help you wade through the alphabet soup of retirement accounts and meet your deadlines. Of course, deadlines may differ for investors using LLCs or other business entities. The retirement and tax professionals at Royal Legal Solutions can offer you the best advice for maintaining your Solo-K's compliance.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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