As 2024 comes to an end it’s important for Solo 401(k) owners to understand the deadlines and rules for their contributions. Let’s discuss the critical aspects and dates that Solo 401(k) owners must know. There are three important deadlines you must know if you have a Solo 401(k) or if you plan to set one up still for 2024 that we will cover in this article. A Solo 401(k) is a retirement plan for small business owners or self-employed persons who have no other full-time employees other than partners or a spouse. It can be fully self-directed into real estate, LLCs, private funds, notes, or other alternative investments, and allows the owner/participants to contribute up to $69,000 per year (far more than a standard IRA). For 2024 contributions, the employee maximum is $23,000, and the employer’s maximum is $46,000 for a total of $69,000. The limits for 2025 increase to $70,000.
2024 Contributions Can Be Made in 2025
Both employee and employer contributions can be made up until the company’s tax return deadline including extensions. If you have a sole proprietorship (e.g. single-member LLC or schedule C income) or C-Corporation, then the company tax return deadline is April 15th, 2025. If you have an S-Corporation or partnership LLC, the deadline for 2024 contributions is March 15th, 2025. Both deadlines (March 15th and April 15th) to make 2024 contributions may be extended another six months by filing an extension. This is a huge benefit for those that want to make 2024 contributions but who won’t have funds until later in 2025.
However, for sole proprietorships (schedule c) you can only make employee contributions (aka, elective deferrals) until April 15 (no extensions) for the prior year. The employer portion could still be made up until October 15 if there was an extension for the personal return of the sole proprietor.
W-2s And Employee Deferrals Force You to Plan Now
While employee and employer contributions may be extended until the company tax return deadline, you will typically need to file a W-2 for your wages (e.g. an S-Corporation) by January 31st, 2025. The W-2 will include your wage income and any deduction for employee retirement plan contributions will be reduced on the W-2 in box 12. As a result, you should make your employee contributions (up to $23,000 for 2024) by January 31st, 2025, or you should at least determine the amount you plan to contribute so that you can file an accurate W-2 by January 31st, 2025. If you don’t have all or a portion of the funds you plan to contribute available by the time your W-2 is due, you can set the amount you plan to contribute to the 401(k) as an employee contribution, and will then need to make a said contribution by the tax return deadline (including extensions).
Example
Now let’s bring this all together and look at an example outlining how this may work. Sally is 44 years old and has an S-Corporation for her online business. She is the sole owner and only employee and had a new Solo 401(k) established in 2024. Her business has $120,000 in net income for the year and she will have taken $50,000 of that in wage income that will go on her W-2 for the year. The additional $70,000 of profit will be reported on her K-1 from the business but will not affect her Solo 401(k) contribution limit. Sally has not yet made any 2024 401(k) contributions but plans to do so in order to reduce her taxable income for the year and to build a nest egg for retirement. If she decided to max out her 2024 Solo 401(k) contributions, it would look like this:
1. Employee Contributions: The 2024 maximum employee contribution is $23,000. This is dollar for dollar on wages so she can contribute $23,000 as long as she made $23,000. Since Sally has $50,000 in wages from her S-Corp, she can easily make a $23,000 employee contribution. Let’s say that Sally doesn’t have the $23,000 to contribute but will have it available by the tax return deadline (including extensions). What Sally will need to do is let her accountant or payroll company know what she plans to contribute as an employee contribution so that they can properly report the contributions on her payroll and W-2 reporting. By making a $23,000 employee contribution, Sally has reduced her taxable income on her W-2 from $50,000 to $27,000. This assumes she made a traditional contribution. Roth employee contributions would not reduce the taxable income on the W-2. At even a 30% tax bracket for federal taxes and a 5% tax bracket for state taxes that comes to a tax savings of $8,050. Example Summary for Sally:
| W2 Wages | Contribution to Traditional Solo 401(k) | Income Taxes Due (Assuming 35%) |
| $50,000 | $0 | $17,500 |
| $50,000 | $23,000 | $9,450 |
| $8,050 Tax Savings |
If Sally instead made employee Roth contributions, she would not get the tax deduction but would be building a Roth account that would come out tax-free at retirement. If Sally chooses Roth, she would be reaping the tax benefit later in retirement as she would have no taxes due on distributions from the Roth account.
2. Employer Contributions – The 2024 maximum employer contribution is 25% of wage compensation not to exceed $69,000 in total. Since Sally has taken a W-2 wage of $50,000, the company may make an employer contribution of $12,500 (25% of $50,000). This contribution is an expense to the company and is included as an employee benefit expense on the S-Corporation’s tax return (form 1120S). In the stated example, Sally would’ve had $70,000 in net profit/income from the company before making the Solo 401(k) contribution. After making the employer matching contribution of $12,500 in this example, Sally would then only receive a K-1 and a net income/profit from the S-Corporation of $57,500. Again, if she were in a 30% federal and a 5% state tax bracket, that would create a tax savings of $4,375. This employer contribution would need to be made by March 15th, 2024 (the company return deadline) or by September 15th, 2024, if the company were to file an extension. In the end, Sally would have contributed and saved $35,500 for retirement ($23,000 employee contribution, $12,500 employer contribution). And she would have saved approximately $12,250 in federal and state taxes between her employee and her employer contributions. That’s a win-win.Example Summary for Sally’s Business:
| W2 Wages | Employer Contribution to Solo 401(k) | Income Taxes Due (Assuming 35%) |
| $50,000 | $0 | $24,500 |
| $50,000 | $12,500 | $20,125 |
| $4,375 Tax Savings |
Under the Secure Act 2.0, you can make employer Roth contributions. The IRS finally released guidance on explaining how to report employer Roth 401k contributions in IRS Notice 2024-2. When making an employer Roth contribution, the company takes the deduction as an employee benefit expenses and then the plan issues a 1099-R to the employee so that in the end there is no tax deduction and that funds are taxed (via the 1099-R) and thus the result is post-tax Roth funds. In the case of a Solo 401(k) owner, you get a deduction for the contribution in your business on the company return and then you pick up a 1099-R of income for the amount of the contribution (similar to if you made a Roth conversion). The net result if you took a deduction in the business and picked up that same amount of income on your personal return. If that just sounds like a Roth conversion of a traditional employer contribution, well, you’re right. It is the exact same process and outcome. The IRS did clarify that there is no FICA on employer Roth contributions and as a result they are not reported on the W-2.
Keep in mind, you need to start making plans now, and begin coordinating with your accountant or payroll company as your yearly wage information on your W-2 (self-employment income for sole props) is critical in determining what you can contribute to your Solo 401(k).
Solo 401(k) Plan Set-Up Deadlines to Make Contributions for 2024
For S-Corp owners, you must have your Solo 401(k) plan set-up by December 31, 2024 in order to make the full 2023 contribution of $69,000, and to ensure your Employee Contribution is reported on form W-2 which is due January 31st, 2025. The total $69,000 contribution limit consists of $23,000 in employee contributions and $46,000 in employer contributions. For s-corp owners, if you do not have the plan set up by December 31, 2024, you technically cannot make employee contributions as you weren’t able to elect an employee deferral in 2024.
You can set up your Solo 401(k) after December 31, 2024, and still make 2024 employer contributions. The Secure Act, which went into law in 2019, allows you to set up your solo 401(k) by the adopting employer’s tax filing deadline and still make your employer contribution. This timeline includes extensions for all adopting employer entities except for sole proprietorships who in an odd rule change in Secure 2.0 can only set-up by April 15 for prior year contributions. So, if you set up your solo 401(k) plan on February 1, 2025, you can still make your employer contributions for 2024, which could be up to as much as $46,000 depending on your wage or self-employment income. Also, if you extended your 2024 business return from March 15th to September 15th (s-corp or partnership) your deadline to establish a new solo 401(k) plan and to make 2024 employer contributions is September 15, 2025.
For sole proprietors (single member LLCs) their deadline to establish the Solo 401(k) plan and still make contributions is not December 31, 2024. Instead, for Sole proprietors the deadline is the company tax return deadline (without extension) so you would have until April 15, 2025 to establish the plan and make 2024 contributions.
Keep in mind that while IRAs can be established until April 15th, 2025 for 2024 contributions, a solo 401(k) should be established for S-Corp owners (and c-corp owners) by December 31st, 2024 if you want to make both employee and employer contributions for 2024. Don’t get the IRA and solo 401(k) deadlines confused and make sure you’ve got a plan for your specific business. Also, remember the deadline is different for sole proprietorships and general partnerships as they have until the company return deadline to establish the plan and make new contributions.
We can help in establishing your solo(k) at KKOS Lawyers using our IRS pre-approved solo(k) plan documents where you can self-direct the solo(k) and have checkbook control right out of the plan. We handle statements and reporting as well as IRS-required plan document updates for your solo 401(k) at Directed Trust Company.
Click here to learn more about setting up a Solo 401k at Directed Trust Company.
