There are different types of plans available for sole proprietors and each have different plan establishment deadlines. Plan establishment is completed when the sole proprietor has signed all of the required opening documents appropriate for that type of plan.
Defined Contribution Plan: Solo 401k Plan (also known as an Individual 401k)
A solo 401k plan is a type of qualified plan, and it is subject to the same deadline as the profit sharing plans. Because the establishment deadline is the last day of the business’ tax year, a business that files its taxes based on a 12-month period other than a calendar year may have a deadline other than December 31. For example, a business with a noncalendar tax year that runs from July 1 to June 30 would have a 2017 tax year that runs from July 1, 2017, until June 30, 2018. The last day that the solo 401k plan could be established for 2017–2018 will be June 30, 2018. The deadline for making an employer or employee contribution is the business’ tax return due date including extensions.
Simplified Employee Pension (SEP) Plan
A SEP plan affords the sole proprietor the most time to wait to make a decision (or to procrastinate) about opening a retirement pan. For instance, the sole proprietor can wait to establish the SEP plan by his tax return due date, including any extensions to file, for the tax year for which he wishes to make a contribution. Therefore, if we are talking about the date of this blog post, a sole proprietor of a nonincorporated business maintained on a calendar tax year will have until April 15, 2017, to establish a SEP plan for 2016. This gives the sole proprietor plenty of time after the end of the year to huddle up with his tax prepare to ascertain if opening a retirement plan makes sense from a contribution perspective. The SEP contribution deadline is the same as the SEP plan establishment deadline.
Savings Incentive Match Plan for Small Employers (SIMPLE IRA)
To establish a SIMPLE IRA plan, the sole proprietor generally must adopt a SIMPLE IRA plan document effective on any date between January 1 and October 1. This requirement does not apply to a new business that comes into existence after October 1 of the year that the SIMPLE is established if the sole proprietor establishes the SIMPLE as soon as administratively possible after the business comes into existence.
This quirky deadline regulation was promulgated to ensure that an employee has sufficient time in the initial plan year to make adequate salary deferrals. Deferrals must be made prospectively. The deadline for making the employer match/nonelective contribution is the business’ tax return due date including extensions.