Retirement Contribution for 2020

New client informs me that he wants to make a retirement account contribution for 2020. Sole-owner of an S Corp. No employees other than the owner.

It's my understanding that a Solo 401(k) would have needed to be established by 12/31/2020, but that contributions could have been made up to the due date of the 1120-S, including extensions, if it had been established by the deadline.

It appears a SEP IRA can be established up to the due date of the 1120-S, including extensions. The client could contribute up to 25% of his W-2 comp into the SEP IRA.

Is that understanding correct?

Yep. You need to know whether to check the retirement box on his W2 before filing it....

And technically, as to 401k contributions, the ee portion must be contributed within 30 days of paydate. Co match goes to 3/15.

The SECURE Act made some changes to retirement plans but I have not studied them. https://www.employeefiduciary.com/blog/ ... ct-changes

You are correct on the SEP IRA.

You can set up a solo 401k up until tax filing deadline + extensions.
Section 201 of the SECURE Act.

SEC. 201. PLAN ADOPTED BY FILING DUE DATE FOR YEAR MAY BE TREATED AS IN EFFECT AS OF CLOSE OF YEAR.
(a) In General.—Subsection (b) of section 401 of the Internal Revenue Code of 1986 is amended—

(1) by striking “Retroactive Changes In Plan.—A stock bonus” and inserting “Plan Amendments.—


“(1) CERTAIN RETROACTIVE CHANGES IN PLAN.—A stock bonus”; and

(2) by adding at the end the following new paragraph:


“(2) ADOPTION OF PLAN.—If an employer adopts a stock bonus, pension, profit-sharing, or annuity plan after the close of a taxable year but before the time prescribed by law for filing the return of the employer for the taxable year (including extensions thereof), the employer may elect to treat the plan as having been adopted as of the last day of the taxable year.”.

(b) Effective Date.—The amendments made by this section shall apply to plans adopted for taxable years beginning after December 31, 2019.

There hasn't been any guidance regarding the employee deferral portion normally designated by year end but the employer contribution should be fine.

Right, but that doesn't accomplish anything that the SEP won't, right? With no ee deferrals, you're 25% of salary, and SEP requires one page to stick in the file.

Re: Post #4. This is in error. The deadline for setting up a 401k is 12/31, not the due date of the tax return.
The extended deadline applies to solely employer funded plans only.

I haven't delved into this, but a 401(k) Plan is a type of/part of a profit sharing plan. So it seems you could set it up now, just no employee deferral for 2020.
But for one employee S Corp, I'd go with the easier SEP.

The extended deadline applies to solely employer funded plans only.

Howard -- can you expand on this?

IRC Sec 401(b)(2) seems clear that if a Solo 401(k) (or regular 401(k)) is established by the due date of the plan sponsor's 2020 tax return, the plan will be treated as having been established by 12/31/2020.

I don't see any reason why a Solo 401(k) couldn't be established by the due date of the plan sponsor's return and the 2020 ER contribution made by the return due date as well.

The EE contribution....I'm not so sure.

It seems quite a few financial planner websites and Solo 401(k) administrator websites agree with that conclusion based on a google search.

Are we flat out missing something?

viewtopic.php?f=8&t=20292

Just saw your other post and am linking it for future readers.

Isn't a 401(k) just a profit sharing plan with a cash deferral arrangement?

The EE contribution....I'm not so sure.

Ahem, there is no deferral.

If this client is going to have a 401k for 2021 and forward, I would just get it set up now for 2020 and forget the SEP. He'll just be rolling over the SEP later this year.