If you plan to open a solo 401k in 2024 so that you can make contributions (both employee and employer) in 2024 or in 2025 by your business tax return due date plus extension, be aware of the upcoming December 31, 2024 solo 401k setup/adoption deadline especially if you want to be able to make solo 401k employee/deferral contributions.

With a solo 401k, the IRS considers the owner-only employee to wear 2 (two) hats–one as an employee of the business and the other as the employer. On the employee side, you can contribute up to $23,000 for 2024 plus an additional catch-up amount of $7,500 if you are 50 or older in 2024. On the employer side, you can also make an additional contribution of 20% of the adjusted net earnings (line 14 Code A) found on Schedule K-1. The overall solo 401k contribution limit for 2024 consisting of both employee and employer contributions is $69,000 or $76,500 if age 50 or older. As a result, the solo 401k allows for higher contributions than a SEP or SIMPLE IRA.

In sum, you will want to start/adopt (i.e., sign the solo 401k establishment documents) the solo 401k by 12/31/2024 if you want to reserve right to make both employee and employer contributions for 2024 in 2024  0r in 2025 by your business tax return including extension; otherwise, if you wait to adopt the solo 401k plan until 2025 but by your business tax return plus extension, you will only be able to make employer/profit sharing contribution for 2024 thanks to the SECUR ACT. To get started with opening your solo 401k, please click here.

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