If the due date of the employer’s tax return for making the Solo 401k Plan annual, tax-deductible contribution falls on a holiday or weekend, then the contribution due date is the next business day. For example, the due date for a sole proprietor’s tax return for a taxable year ending December 31, 2011, normally would be April 15, 2012; however, because that date is a Sunday, the due date will be April 16, 2012. Since a Solo 401k plan contribution made on April 16, 2012, falls on the deduction deadline for the year ending December 31, 2011, it is deductible in that prior year.
Rule Also Applies to Extensions: The weekend/holiday rule also applies to extensions of the tax return due date. For instance, if a corporation obtained the 6 month extension on its tax return for a taxable year ending December 31, 2011, the extended due date normally would be September 15, 2012, but because that date is a Saturday, the extended due date will be September 17, 2012. As such, a Solo 401k plan contribution made on September 17, 2012, would be within the allowable deduction period for the taxable year ending December 31, 2011.
IMPORTANT: The Solo 401k | Individual 401k | Solo 401k| must be in existence by the end of taxable year for which deduction is first allowed. Simply put, a deduction is not allowed for a prior taxable year if the Solo 401k plan is not established by the end of that taxable year.
EXAMPLE: Establishment of Solo 401k Plan. Corporation Y is a calendar year corporation. It establishes a Solo 401k plan on February 1, 2011. The plan cannot be made effective for the taxable year ending December 31, 2010, to obtain a deduction for 2010, because the plan is established after the close of the taxable year (i.e., after December 31, 2010).
Note: Although the Solo 401k plan must be established by the end of the taxable year, it is not required to be funded by that date.