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This is markedly confusing.

You can elect to make a retroactive solo 401k contribution as a sole proprietorship under the secure 2.0 up until the tax filing deadline (without extension). So, April 15th.

Let's say i OPEN an account as a sole proprietorship wtih any of the major brokerages (fidelity, ...) and I am within this deadline.

I go to their site -> papers get processed -> I have an account now per the deadlines rules -> you don't have to immediately funds these.

So:

When do the funds have to be deposited by for the prior year. The IRS makes no clarifcation (to my knowledge) of whether you can contribute up until the extension deadline (potentially october 15th) as long as the opening of the account was within the April 15th limit - per the stated text in the Secure 2.0 act.

You can make profit sharing contributions as the employER until october 15th. That's fine. No issue in understanding. Unclear verbiage and lack of clarity around the employEE side of things.

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1 Answers1

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The IRS makes it pretty clear here. You can only deduct prior year contributions made before the tax return due date (with extensions).

The legal authority is the IRC Sec. 404(a)(6):

(6) Time when contributions deemed made

For purposes of paragraphs (1), (2), and (3), a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof).

Also see this (IRC Sec. 404(a)(8)(C) for self-employed individuals):

(C) the contributions to such plan on behalf of an individual who is an employee within the meaning of section 401(c)(1) shall be considered to satisfy the conditions of section 162 or 212 to the extent that such contributions do not exceed the earned income of such individual (determined without regard to the deductions allowed by this section) derived from the trade or business with respect to which such plan is established, and to the extent that such contributions are not allocable (determined in accordance with regulations prescribed by the Secretary) to the purchase of life, accident, health, or other insurance; and

The timing for adoption of the plan is governed by the IRC Sec 401(b)(2):

If an employer adopts a stock bonus, pension, profit-sharing, or annuity plan after the close of a taxable year but before the time prescribed by law for filing the return of the employer for the taxable year (including extensions thereof),

This part was amended by the Secure 2.0 act, as enacted (see PL 117-328):

(a) In General.--Section 401(b)(2) is amended by adding at the end the following: ``In the case of an individual who owns the entire interest in an unincorporated trade or business, and who is the only employee of such trade or business, any elective deferrals (as defined in section 402(g)(3)) under a qualified cash or deferred arrangement to which the preceding sentence applies, which are made by such individual before the time for filing the return of such individual for the taxable year (determined without regard to any extensions) ending after or with the end of the plan's first plan year, shall be treated as having been made before the end of such first plan year.''.

(b) <<NOTE: 26 USC 401 note.>> Effective Date.--The amendment made by this section shall apply to plan years beginning after the date of the enactment of this Act.

This is for unincorporated self-employed individuals (disregarded SMLLC or sole proprietors). This is the part you're referring to.

littleadv
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