The deadline to get the most out of your plan is establishing it before December 31st.
What do I have to do to legally create my plan?
You must sign the plan adoption agreement before December 31st. In December, we always get a very large Solo 401(k) rush of customers. In order to make sure all our customers can confidently get their adoption agreements signed, a Solo 401(k) must be purchase by midnight December 20th.
What are the two types of contributions?
Employee Contributions - These come from your personal or self-employed income. You need 1099 income (sole proprietorship), or active salary income from your small business entity (LLC, C-Corp, S-Corp). Rental income, investment income, or S Corp Distributions do NOT count as active income to the IRS. There is the $19,500.
Employer Contributions - Employer contributions come from the company. Many small business owners are not used to thinking of themselves as separate from their business. This contribution is a match or profit share. At a large company, employees put in their contributions, and then the employer gives them a match or profit share. The Solo 401(k) allows you to do the same operation in a mini-plan, by matching or giving your employee(s), just you, or maybe a spouse, the ability to make your own employee contribution and enhance it with an employer contribution.
When do to make sure I get my employer contribution in?
For your Solo 401(k), you must formally elect to make an employee deferral contribution by December 31st. If your Solo 401k is not open by December 31st you MISS OUT on all employer contributions.
In order to do employer contribution for 2020, the plan must be opened by December 20th at Rocket Dollar.
Do I have more time to finish my contribution like my IRA?
The actual contribution can be completed up until the personal tax filing deadline or tax filing deadline of your entity. (March 15th for some business entities, April 15, or October 15 if an extension was filed). Keep in mind this only refers to a Solo 401(k), not a standard employer 401(k) plan which typically requires contributions by December 31st.