Investment to Individual 401K for self employed

[Anshu]

Hi,

I am self employed LLC. I did not make any Individual 401K contribution or open an account in 2023. I would like to do so now and invest for 2023. Is it possible?

I did have a employer 401K account from my previous employer, can I use that 401K account for investments or do I need to have a new 401K Individual account.

Thanks

[MinhT1]

As a self-employed individual, you can contribute to a 401(k) plan, called a solo 401(k). That solo 401(k) is distinct from the 401(k) account you had with your former employer.

The contribution limits of a solo 401(k) are given in this IRS document. 

There are also other retirement plan alternatives outlined in that document. The contribution limits of these other plans are given in this IRS document.

Per Publication 560, your 401(k) plan has to be established by December 31, 2023 for you to contribute to it for tax year 2023. The plan doesn’t necessarily have to be funded by that date, but the documents must be executed by December 31 for the plan to be in existence. 

But you have until March 15, 2024 to contribute to it if you are a single-member LLC taxed as a corporation (or September 15 if you file an extension), or April 15, 2024 if you are taxed as a disregarded entity (or October 15 if you file an extension).

So it's too late for 2023 if you have not yet established a plan.

[dmertz · Accepted solution]

"I did have a employer 401K account from my previous employer, can I use that 401K account for investments or do I need to have a new 401K Individual account.  "

You are required to establish a separate 401(k) plan and account.

You have until the due date of your 2023 tax return (without extensions) to establish an individual 401(k) plan, elect to make an employee deferral and make the employee and employer contributions with respect to your 2023 net earnings from self-employment.  (IRS Pub 560 has not yet been updated to reflect the new establishment and election deadlines provided by recent updates to the tax code made by the SECURE and SECURE 2.0 Acts.)

[Anshu]

Thanks for the response.

1. On similar lines, does SEP investments for business owners also have a cut off date of Dec 31st 2023 to be setup for account establishment?

2. If Dec 31st 2023 is not the cutoff, can I contribute for 2022 and 2023?

[dmertz · Accepted solution]

The deadline to contribute for 2022 has long passed regardless of the type of plan.

The deadline to contribute to establish a SEP plan and contribute to a SEP IRA for 2023 instead establishing and contributing to an individual 401(k) is the due date of your 2023 tax return, including extensions.