Small Business Owners: Understanding the Different 401(K) Solo Deadlines
Financial matters are always at the center of attention of business owners. For self-employed individuals, tax planning is an important process that can improve profits and help business owners accelerate wealth creation. At the same time, business owners should also think about retirement planning and saving for their future. Fortunately, you can accomplish both goals by establishing a Solo 401(k) retirement plan.
Solo 401(k)s are self-directed retirement plans that offer flexible investment options and one of the highest contribution limits among qualified retirement plans: $53,000 for 2016 or $59,000 if you’re age 50 or older. This allows participants to reduce their taxable income by thousands of dollars each year.
These are the deadlines:
Many people mistakenly assume that the Solo 401(k) must be set up and contributed before the end of each year. Because of this, eligible employers tend to delay creating a retirement plan and may lose tax benefits and retirement savings. There are different deadlines for setting up a Solo 401(k) and for making contributions, and self-employed professionals need to know these deadlines to plan ahead.
You must set up your Solo 401(k) at the end of each year
Small business owners have until the last day of the year to set up a Solo 401(k) plan that qualifies for that year’s contributions.
To be eligible for a Solo 401(k) plan, you must engage in self-employment business with the intent to generate profit. That business cannot have employees other than you and your spouse.
But you can make contributions in the next year
Fortunately, Solo 401k contributions do not need to be made by December 31 to be counted for the fiscal year.
Depending on the tax code, Solo 401(k) plans can receive contributions through your company’s tax filing deadline. For sole proprietorships, partnerships or LLCs, the contribution deadline is April 15 of the following fiscal year. For corporations, it’s March 15. You can even request an extension if necessary.
What are you willing to win?
By contributing to a Solo 401(k) plan, you can reduce your taxable income by a substantial amount. Funds can grow tax-deferred, meaning you won’t pay taxes on the wealth you accumulate until you make withdrawals in retirement.
you can use a 401(k) Calculator Only to determine the exact amount you can contribute this year.