The Solo 401(k) Contribution Deadline

Employee Deferral
If you’re the sole member/owner of a LLC, you can make employee deferral contribution of up to $18,000 to the 401(k) plan for 2016.

If you’re over 50 years old, you’re in luck because you’re given an extra $6,000 “catch-up” contribution, which means your total employee deferral contribution limit is $24,000 for 2017.

You have to make a formal election to make employee deferral contributions by December 31, but the actual deadline is the LLC owner’s personal tax-filing deadline of April 15. If you’re filing an extension, the deadline would be October 15.

Remember: your employee deferral contribution can be made to the pre-tax or “normal” side of the 401(k) plan, or to the after-tax or Roth side of the 401(k) plan. It doesn’t have to be all or nothing either; if you want to split the contributions between the pre-tax and after-tax sides of the plan, you can do that as well.

Profit Sharing Contribution
A single-member/owner LLC make an employer or profit-sharing contribution to the Solo 401(k) both for the business owner, and his or her spouse.

IRC 401(a)(3) governs employer contributions, and it dictates that a business entity can contribute up to 25% of the business’s income that is subject to self-employment tax. Given that single-member/owner LLCs are not taxable entities, your profit-sharing contribution is going to be based off of your Schedule C earned income. There’s an additional calculation that effectively lowers the maximum contribution to 20% of your earned income; IRS Publication 560 has a step-by-step worksheet for the calculation.

This calculation takes into account a couple of deductions. The first is the deduction for half of your self-employment tax, and the second is a deduction for the contributions you’ve made to the Solo 401(k). In effect, this generally means that your profit-sharing contribution limit will be 20% of your net self-employment income.

A single-member/owner LLC’s employer or profit-sharing contribution deadline is the same for the employee deferrals. It follows the LLC owner’s personal tax-filing deadline of April 15, unless you file for an extension to October 15.

Employee Deferral
The partners of a multi-member LLC or Partnership can each make an employee deferral contribution of up to $18,000 for 2017.

If you’re over 50 years old, you’re in luck because you’re given an extra $6,000 “catch-up” contribution, which means your total employee deferral contribution limit is $24,000 for 2017.

You have to make a formal election to make employee deferral contributions by December 31, but the actual deadline is the LLC’s or Partnership’s tax-filing deadline, which includes extensions.

Remember: your employee deferral contribution can be made to the pre-tax or “normal” side of the 401(k) plan, or to the after-tax or Roth side of the 401(k) plan. It doesn’t have to be all or nothing either; if you want to split the contributions between the pre-tax and after-tax sides of the plan, you can do that as well.

Profit Sharing Contribution
A multiple-member LLC or Partnership may make an employer or profit-sharing contribution to the Solo 401(k) both for the each of the partners or owners.

IRC 401(a)(3) governs employer contributions, and it dictates that a business entity can contribute up to 25% of the business’s income that is subject to self-employment tax. Given that single-member/owner LLCs are not taxable entities, your profit-sharing contribution is going to be based off of your Schedule C earned income. There’s an additional calculation that effectively lowers the maximum contribution to 20% of earned income; IRS Publication 560 has a step-by-step worksheet for the calculation.

This calculation takes into account a couple of deductions. The first is the deduction for half of your self-employment tax, and the second is a deduction for the contributions you’ve made to the Solo 401(k). In effect, this generally means that your profit-sharing contribution limit will be 20% of your net self-employment income as a partner of the LLC.

A multiple-member LLC or Partnership employer or profit-sharing contribution deadline is the same for the employee deferrals. It follows the entity’s tax-filing deadline, including extensions.

Employee Deferral
If you have a corporation, then you need to do your employee salary deferral contributions through payroll.

An employee of a C-Corporation or S-Corporation can make an employee deferral by using a W-2 form, and that employee can make the contribution at any time during the year when the income to be contributed is earned.

If your Corporation uses a payroll company, generally you’ll need to have the contribution deducted from the employee’s paycheck. If you’re not using a payroll company then the employee can make the contribution anytime during the year that they wish.

Keep in mind that the Dept. of Labor safe harbor requirements stipulate that a deferral contribution has to be deposited within seven days from the date when the employee chose to make the contribution.

Remember: your employee deferral contribution can be made to the pre-tax or “normal” side of the 401(k) plan, or to the after-tax or Roth side of the 401(k) plan. It doesn’t have to be all or nothing either; if you want to split the contributions between the pre-tax and after-tax sides of the plan, you can do that as well.

Profit Sharing Contributions
A Corporation can make profit-sharing contributions for it’s owner(s)/employee(s). IRC 401(a)(3) governs employer contributions, and it stipulates that total employer contributions cannot exceed 25% of the compensation paid to the owner(s)/employee(s).

The filing deadline for employer or profit-sharing contributions for Corporations is the Corporation’s tax filing deadline, including extensions.