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Welcome to the Retirement Learning Center’s (RLC’s) Case of the Week. Our ERISA consultants regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans, and other types of retirement savings and income plans, including nonqualified plans, stock options, Social Security, and Medicare. This is where we highlight the most relevant topics affecting your business. A recent call with a financial advisor in Georgia is representative of a common question on the deadline for a sole proprietor to set up a 401(k) plan.
“What is the deadline for a sole proprietor to start and contribute to a new 401(k) plan for 2024?”
If there are no employees other than the owner, and the owner wants to make employee salary deferrals, the short answer is April 15, 2025. Section 317 of the SECURE Act 2.0 permits eligible sole proprietors to start a solo 401(k) plan by the deadline for their tax returns (excluding extensions) and retroactively make employee salary deferrals (pre-tax and/or designated Roth). The owner could also make employer contributions to the plan if allowed under the terms of the plan.
To take advantage of Section 317,
The company must be a sole proprietorship or single-member limited liability company (LLC),
It cannot have any employees other than the owner and
This must be the first year of starting a 401(k) plan.
If the business owner only wants to make employer contributions to a plan (e.g., simplified employee pension, profit sharing, cash balance plan, etc.), then, under the Setting Every Community Up for Retirement Enhancement (SECURE Act 1.0), sole proprietors were given until their tax return filing deadlines (including extensions—possibly up to October 15th) to set up and make employer contributions to a new plan and treat those contributions as if they were made in the prior tax year.
Under the SECURE Act 2.0, certain sole proprietors have until April 15, 2025, to establish a solo 401(k) plan and make retroactive deferrals for the 2024 tax year.