Generally, any business may adopt a Solo 401(k). The business need not assume any particular legal form. Thus, a self-employed business owner, a partnership, a limited liability company (LLC), or any type of corporation (including a Sub-chapter S corporation) may adopt a Solo 401(k).

For 2022, in order to make employee contributions for 2022, the self-employed business owner has to establish/adopt (i.e., sign the solo 401k establishment documents including the Adoption Agreement) by December 31, 2022. However, if the plan is established on January 1, 2023 or after by your business tax return due date including the business tax return extension, then you cam still make employer profit sharing contributions for 2022 but cannot make employee contributions. For example, an employer operating the plan on a calendar-year basis has to complete the solo 401k plan documentation no later than December 31, 2022.

For makin 2022 solo 401k plan contributions, the solo 401k has to be adopted by December 31, 2022 for self-employed businesses operating the plan on a calendar-year basis in order to preserve the right to make both employee and employer contributions in 2023 for 2023 by the business tax return including business tax return extensions. Otherwise, if the solo 401k plan is adopted on January 1, 2023 or after but by your business tax return due date including extensions, you will only be allowed to make employer contributions not employee contributions to the solo 401k plan. To learn more about the December 31, 2022 plan adoption/establishment deadline VISIT HERE.

If you are self-employed and open a solo 401k plan by December 31, 2022, you will be able to wait until next year (2023) to contribute $61,000 plus an additional $6,500 if you turn 50 in 2022 or are already over age 50.  This essentially means that you simply need to sign the solo 401k documents by December 31, 2022 so that you can wait until next year to both open the solo 401k bank account and make both annual solo 401k contribution types (employee and employer).

You can still setup the solo 401k in 2023 under your LLC business. Next year in 2024, we can update the plan to list the new self-employed business. All else would remain the same (e.g., same plan name, same bank account for the solo 401k, etc.). The 2024 annual solo 401k contributions would be based on your new self-employment income and you would have until 2025 to make those contributions.

Yes, provided you each spouse separately has the necessary net self-employment income to satisfy said contribution amounts, as solo 401k contributions are based on each participants separate (NOT the combined) net self-employment income. For example, if the self-employed business is an LLC that is taxed as as sole proprietorship, both spouses will need to file a separate Schedule C and their solo 401k contributions will be based on their respective Schedule C net self-employment income figure, so line 31 of the Schedule C.

Good question and the answer is yes. In order for either spouse to contribute to the solo 401k plan, whether employee or employer contributions, the spouse that wants to contribute to the solo 401k plan has to have net self-employment income.

First, your wife’s contributions have no impact on your contributions because the contribution limits are per participant. However, you are correct that employee contributions (Type 1) are capped at $20,500 for tax year 2022 (plus a $6,500 catch-up if age 50 or older in 2022) between all 401k plans. Therefore, if your wife has already maxed out the $20,500 employee contribution (Type 1) to her day job 401k plan for 2022, then she can only make the profit sharing contribution (Type 2) to the solo 401k plan and it would be based on her net self-employment income from the business that sponsors the solo 401k plan. You on the other hand, can make both the employee (Type 1) and profit sharing contributions (Type 2) to the solo 401k plan if you have net self-employment income and have not contributed to any other 401k plan.

While one of the benefits available under a retirement plan such as a solo 401k plan is the ability to make annual contributions even if you are over age 73,  you are not required to make annual solo 401k contributions in order to continue with the solo 401k plan.

Because a solo 401k plan is only for owner-only businesses, equal contributions do not apply; therefore, just one spouse can contribute while other does not.

Your wife’s ability to contribute to a solo 401(k) depends on the self employment income that she receives from the partnership.  Specifically, in order to determine how much she could contribute to the solo 401(k) she would take the amount reported on line 14 of her K-1 and reduce it by one half of the self-employment tax.  Of that number, she could contribute for 2022: (i)  up to $27,000 as an employee contribution (less any amount contributed as an employee contribution to her 401(k) plan sponsored by her daytime employer); and (ii) a profit-sharing contribution to the solo 401(k) equal to 20% of that same number (i.e. line 14 from her K-1 -1/2 of the self-employment tax) provided that her overall contribution to the solo 401(k) cannot exceed $67,500 for 2022. For 2023, the overall limit is $73,500.

Have you made any SIMPLE IRA contributions for 2022? If you have not, do not make it to the SIMPLE IRA if the SIMPLE IRA is also for your self-employed business, as the IRS rules do not allow contributions in the same year to both a solo 401k and a SIMPLE IRA.

You don’t need to inform us of the contribution or submit a contribution form. However, you will need to report the contribution to the IRS when you file your taxes. Also, you can use the annual contribution form located on our forms page to internally document the annual contribution.

It depends on whether or not those guaranteed payments are reported on line 14 of the K-1, as contributions to a solo 401k plan must be based on earned income from self-employment activity not passive or investment income.

Correct since earned income for an S-corp is reported on a W-2. Both the employee and profit sharing contribution is based on W-2 wages, and each spouse, provide they receive W-2 wages from the self-employed business, can make solo 401k contributions.

Yes since a timely business tax return extension was filed.  The solo 401k contribution rules allow for contributions of both the employee and employer by September 15 if a tax return extension is timely filed. See IRS Publication 560 for more information surrounding the contribution deadlines.

Good question. Yes, you are still considered “covered by a retirement plan at work” even if you are not making solo 401k contributions.

While you can still contribute to a traditional IRA, your traditional IRA contribution deductions will be reduced (phased out) if your AGI is a certain amount.

For 2022, if you are covered by a retirement plan including a solo 401k plan, your deduction for contributions to a traditional IRA is reduced (phased out) if your AGI is:

• More than $109,000 but less than $129,000 for a married couple filing a joint return or a qualifying widow(er),

• More than $68,000 but less than $78,000 for a single individual or head of household, or

• Less than $10,000 for a married individual filing a separate return.

In short your understanding is correct, as solo 401k is not subject to the safe harbor rules since it is 401k for owner-only employees. Same with vesting, all contributions are fully vested immediately because it is a 401k plan sponsored by a self-employed business with no common law employees.