Solo 401k Contribution Deadline

Employee Deferral

• The owner of a sole proprietorship may make employee deferral contributions of as much as $19,500 to a Solo 401(k) plan for 2020.
• Those who are 50 and older can tack on an additional annual catch-up contribution of $6,500, bringing their annual deferral contribution to as much as $26,000.
• According to Solo 401k contribution deadline rules, plan participants must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the personal tax-filing deadline (April 15, or October 15 if an extension was filed).
• Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions.

Profit Sharing Contribution

• A sole proprietorship may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse.
• Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25% of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20% of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation.
• In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (1) the deduction for half of the self-employment tax, and (2) the deduction for contributions on your behalf to the Solo 401(k) plan.
• A sole proprietor’s Solo 401(k) contributions for a profit-sharing component must be made by the tax-filing deadline (April 15, or October 15 if an extension was filed).

Employee Deferral

[themify_col grid=”2-1 first”]The owner of a single member LLC may make employee deferral contributions of as much as $19,500 to a Solo 401(k) plan for 2020.

Those 50 and older can tack on a $6,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $26,000.[/themify_col]

[themify_col grid=”2-1″]

Solo 401k contribution deadline rules dictate that plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline.
Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions.

[/themify_col]

Profit Sharing Contribution

[themify_col grid=”2-1 first”]A single member LLC business may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse.

Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25 percent of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20 percent of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation.[/themify_col]

[themify_col grid=”2-1″]

In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (i) the deduction for half of self-employment tax and (ii) the deduction for contributions on your behalf to the Solo 401(k).

A single member LLC’s Solo 401(k) contributions for profit sharing component must be made by its tax-filing deadline.

[/themify_col]

Employee Deferral

[themify_col grid=”2-1 first”]The owner of a multiple member LLC may make employee deferral contributions of as much as $19,500 to a Solo 401(k) plan for 2020.

Those 50 and older can tack on a $6,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $26,000.[/themify_col][themify_col grid=”2-1″]According to Solo 401k contribution deadline rules, plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline. 

Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions.[/themify_col]

Profit Sharing Contribution

A multiple-member LLC business may make annual profit sharing contributions to a Solo 401(k) plan on behalf of its business owners. Internal Revenue Code Section 401(a)(3) states that total contributions are limited to 25 percent of the business entity’s income subject to self-employment tax.

A multiple-member LLC must make any profit-sharing contributions before its tax-filing deadline.

Employee Deferral

[themify_col grid=”2-1 first”]For a corporation, employee salary deferral contribution must be done through the payroll.

Using a W-2 form, an employee of a C Corporation or S Corporation can make a deferral contribution at any time within the year when the income to be contributed is earned. Timing of the contribution typically will depend on the corporation’s payroll structure.

If the corporation uses a payroll company, a deferral contribution generally will be deducted from the employee’s paycheck. If the company does not use a payroll company, an employee can elect to make a deferral contribution at any time during the year.[/themify_col][themify_col grid=”2-1″]The Department of Labor’s safe harbor guidelines stipulate that a deferral contribution to a Solo 401(k) account is to be made within seven days of the date on which the employee elects to make the contribution.

An employee who elects to make a deferral contribution in a given pay period — on Dec. 30, for example — should be sure that his or her paycheck for that period is sufficient to cover the contribution.  

Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions.[/themify_col]

Profit Sharing Contributions

The corporation may make annual Solo 401(k) contributions for profit sharing component for its owner(s)/employee(s).  Internal Revenue Code Section 401(a)(3) states that total contributions are limited to 25 percent of the compensation paid.

The corporation must make any profit-sharing contributions before its tax-filing deadline.