The deadline to get the most out of your plan is to establish it before December 31st.
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 purchased by midnight on December 15th.
What are the two types of 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.
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.
Employee Contribution Deadline
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 employee contributions.
In order to make an employee contribution for 2023, the contribution must be elected by December 31st and deposited within a reasonable time frame. If you miss this deadline or feel it may be too late, learn more about a temporary SEP IRA here.
Please note that the 12/31 deadline is for employee contributions and corporation-sponsored plans. If you are only doing employer contributions for LLC/Sole Prop sponsored plans the Secure Act 2.0 (Section 317) allows you to create the plan and treat it as having been established on the last day of the taxable year if set up prior to filing taxes.
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.