QUESTION: Do you know what the Solo 401k establishment deadline is? I use an accounting firm for my payroll and they are telling me that I cannot make a contribution this year for last year because the Solo 401k bank account was not opened by the December 31st deadline even though I adopted my solo 401k plan by December 31.
Regards, Susan L.
ANSWER:
Unfortunately much confusion exists from payroll vendors to even
accountants not familiar with the self-directed solo 401k plan and the checkbook control feature.
A outlined in "IRS
Publication 560, Retirement Plans for Small Businesses",
page 14 of 19, Set-up deadline: "To
take a deduction for contributions for a tax year, you plan must be setup (adopted)
by the last day of that that year (December 31 for calendar-year
employers)." Here is the link to Pub. 560: http://www.irs.gov/pub/irs-pdf/p560.pdf
Therefore,
if you adopted (i.e., signed the solo401k trust established documents including the solo 401k plan adoption agreement)
your self-employed solo 401k by the 12/31 adoption deadline, you have satisfied the 401k establishment requirement in accordance with
the IRS prescribed regulations under IRS Pub. 560.
Furthermore,
if you adopted the Solo 401k plan by
12/31/ deadline in accordance with IRS Pub. 560, page 14 of 29, section titled "Contribution
deadline", which details the following:
"You can make deductible contributions for a tax year
up to the due date of your return (plus extensions) for that year.”
In
sum, you will need to setup the bank account for the Solo 401k to make your prior
tax year contribution by the prescribed contribution deadline: your tax return
due date plus extensions.
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