If I'm late to open a Solo 401(k), how can I use a temporary SEP-IRA to still defer the most money from taxes?

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The Solo 401(k) has some generous tax deferrals compared to other accounts. the Rocket Dollar Solo 401(k) has quite a few plan features. When investors discover it, sometimes they want to jam in as much tax deferrals as possible. 

However, the Solo 401(k) has some different tax deadlines than IRAs, which means some investors can be caught off guard. If you don't open your account by December 31st, you cannot do employer contributions to your Solo 401(k), as you were already supposed to declare a profit share or match. Those wishing to get the most of a Solo 401(k) should open it by October, November, or the very start of December to hit all their goals. 

If you miss the December 31st deadline, you can still do an employee contribution. This is $22,500 dollars, which 3x that of an IRA, but not as big as $61,000.

If you are ok with only contributing $22,500...

Continue opening a Solo 401(k). As long as you open it before your taxes, you can make employee contributions from your salary. You must have paid yourself during the previous year.

Those over 50 will be able to save $27500

If you want to contribute as much as possible... $61,000

  1. Open a SEP IRA. Fidelity is typically the fastest place to open a SEP IRA with an extremely tight deadline. Fidelity should not charge for a SEP IRA as they make money on those using their funds and investments. Rocket Dollar has a SEP IRA, but it will take a few weeks to open, has a charge for an account, and we are a small team that cannot always move mountains during crunch times, like the end of the year and right before taxes. We have many clients making important requests at these times.
  2. Contribute to the SEP-IRA ASAP When you contribute to a retirement account, investments may stay in cash. You will soon roll over this money to your new Rocket Dollar Solo 401(k)
  3. Request a tax extension if you are close to the April Tax deadline and might not make it.
  4. Open a Rocket Dollar Solo 401(k). The Rocket Dollar Solo 401(k) has Traditional, Roth, employer, and employee contributions. It also has after-tax contributions. Most clients feel this gives them much more flexibility as their small business, self-employment income, and tax goals change over time. It also allows for Solo 401(k) loans and a UBIT tax exemption that is highly prized by retirement real estate investors. The SEP-IRA was very popular until the Solo 401(k) was created with a lot more plan features for self-employed individuals. 
  5. Transfer the pre-tax dollars of your SEP IRA to the Pre-Tax bucket of your Solo 401(k) Since both of these accounts are pre-tax, you can send them to any pre-tax-like account. A Solo 401(k) is more flexible than any employer-connected account, as the money is very flexible. 
  6. Close your SEP IRA and make the most of your Solo 401(k). For future tax years, you can now use the full flexibility of your Rocket Dollar Solo 401(k). 



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