Deadline for Elective Deferral Contributions

[rynlee]

Hello, I am self-employed with a solo 401k.  I am confused about the deadline for making elective deferral contributions.  I understand that I have until the tax-filing deadline to make the elective deferral contributions, but what does it mean that the contributions "must be elected by the end of the tax year"?  And how would I prove this?

Thank you,

Ryan

[JulieS]

If your plan was in place as of December 31, 2021, you have met the current IRS requirement to elect your deferral by the end of the tax year.

The SECURE Act, which was passed near the end of 2019, changed the deadline to open a Solo 401(k), but the IRS has not changed its guidance that the plan participant must make their salary deferral election by the last day of the calendar year.

If you have not yet opened your 401(k), according to the new law you still have time to do so. The plan must be established and funded by the due of your tax return. 

[rynlee]

Thank you for your reply, @JulieS .  The plan has been in place for many years. 

My understanding is that I must formally elect to make an employee deferral contribution by Dec. 31., but the the actual contribution can be made up until the tax-filing deadline.  My question is: what does it mean to "formally elect"?  How do I substantiate that I've done so?

Ryan

[DianeW777 · Accepted solution]

You formally elect to defer and contribute by taking the action to authorize the additional funds to your Solo 401(k). Formal election simply means you are documenting that you plan to make elective deferrals into your plan, and are documenting how much you plan to contribute. These plans have the same rules and requirements as any other 401(k) plan.

• One Participant (Solo) 401(k) Plans

As long as your Solo 401(k) was setup before December 31st, you may make contributions as an “employer” for the previous year until the IRS tax deadline.

Contribution Limits:

The 401(k) contribution limit for 2021 is $19,500. For 2022, this amount has been increased to $20,500. For both 2021 and 2022, if you are age 50 or over, you can contribute an additional $6,500.

[rynlee]

Thank you!