The 2019 passage of the SECURE Act changed the solo 401(k) year-end setup deadline, which led to some confusion about whether a small business owner can defer compensation for the prior year, after the end of the year.
As the employee, a business owner would need to establish the solo k plan and formally elect to make an employee deferral contribution by December 31, which is the end of the business year.
As the employer, a business owner can make profit-sharing contributions to their own solo 401(k) and their spouse’s solo 401(k). The deadline for profit-sharing contributions is April 15, or October 15 if an extension is filed.
Meaning, those who did not establish the solo 401(k) plan by year-end (December 31), will not be able to make employee contributions in the following year for the previous tax year. Only profit-sharing contributions are allowed if the plan is established after the end of the year, but by the tax filing deadline, with extensions.
For employee and employer contributions to be allowed into the solo 401(k), the plan must be established, and employee election made, by December 31, 2021.
Rocket Dollar recommends consulting with a licensed professional about your Solo 401(k) and any tax, legal, or investment-related questions.