As the end of 2024 approaches, it’s essential to focus on meeting critical solo 401k deadlines. December 31st marks a pivotal date for compliance, contributions, and tax planning. Missing these solo 401k deadlines could mean losing valuable tax benefits or facing penalties.
Maximize contributions, adhere to compliance requirements, and address required minimum distributions (RMDs). Taking action now will help you optimize your retirement savings and avoid unnecessary setbacks.
This guide provides everything Solo 401k account holders need to know to stay compliant, maximize their savings, and prepare for a strong start to 2025.
Review Your 2024 Contributions
Contributions to your Solo 401k are a cornerstone of retirement savings and a powerful tool for reducing taxable income. Understanding the limits and how to maximize them is essential as the year draws to a close.
Contribution Limits for 2024
For 2024, the Solo 401k contribution limits have increased, allowing you to contribute up to $69,000—or $76,500 if you are aged 50 or older. These limits include both employee and employer contributions, making Solo 401k plans one of the most generous retirement savings options available. If your spouse earns income through your business, they can also contribute up to the same limit, potentially doubling your household contributions to $153,000 annually.
Employee salary deferrals can total $23,000 in 2024, or $30,500 if you’re 50 or older, thanks to the $7,500 catch-up contribution. Employer contributions are calculated as a percentage of your net self-employment income or W2 wages—up to 25%. Together, these contributions allow you to maximize savings while reducing your taxable income.
Maximizing Contributions
The more you contribute, the more you save on taxes and grow your retirement nest egg. For high earners, maximizing both employee and employer contributions can lead to substantial tax savings. Additionally, making Roth contributions within your Solo 401k provides a unique opportunity for tax-free growth, complementing traditional pre-tax contributions.
Actionable Steps
To ensure you maximize your 2024 contributions:
- Calculate how much you’ve contributed so far and compare it to the limits.
- Make any additional contributions before December 31st to maximize your savings.
- Consult your Solo 401k plan provider if you need assistance calculating or processing contributions.
Understanding Key Solo 401k Deadlines
Deadlines are a critical aspect of managing your Solo 401k plan. Missing them can result in lost tax benefits or compliance issues. Here are the key dates to keep in mind.
December 31st Contribution Election Deadline
The IRS recommends you formally elect your contributions by December 31st. This means you choose a and formally document the contribution amount or percentage you plan to deposit into the plan. This deadline applies to both pre-tax and Roth contributions for the employee. Missing this date means losing out on a significant tax-saving opportunity, especially if you have the Eligible Automatic Contribution Arrangement (EACA) amendment activated in your Solo 401k plan.
Contribution Deposit Deadline
You may deposit employee salary deferral contributions and employer profit-sharing contributions until your tax filing deadline, including extensions. For most, this means contributions can be made as late as April 15, 2025, or October 15, 2025, if you file for an extension. However, it’s still wise to plan early and ensure you have the funds available.
Other Important Dates
If you’re establishing a new Solo 401k plan for the first time, it must be set up by the time you file taxes for your small business, including extensions. However, this contradicts the IRS December 31st to complete the contribution election deadline. To ensure the highest compliance, it is recommended that you open your 2024 Solo 401k plan by December 31st, 2024 to qualify for 2024 contributions.
Check for Required Minimum Distributions (RMDs)
RMDs are an essential consideration for Solo 401k account holders, particularly for those reaching specific age thresholds. Failure to comply with RMD rules can lead to significant penalties.
Who Must Take RMDs
Recent changes under the SECURE Act 2.0 have updated the rules for RMDs starting in 2024. The age at which you must begin taking RMDs has increased to 73 for those turning that age in 2024 or later. This adjustment gives participants more time to let their investments grow before required withdrawals.
If you turned 73 in 2024, you must take your first RMD by April 1, 2025. Subsequent RMDs must be taken by December 31st of each year, including a second RMD in 2025 to cover that year.
How to Calculate RMDs
To calculate your RMD, divide your Solo 401k account balance as of December 31, 2023, by the distribution period listed in the IRS Uniform Lifetime Table. For example, if your account balance was $500,000 and your distribution period is 25.6, your RMD would be $19,531 for the year.
Consult your plan provider or a financial advisor if you need help determining your exact RMD amount.
Consequences of Missing RMDs
Missing an RMD can result in hefty penalties—50% of the amount you should have withdrawn. The SECURE Act 2.0 has reduced this penalty for some cases, but the consequences remain severe. To avoid issues, ensure you process your RMD by December 31st and keep accurate records of the distribution.
Solo 401k Compliance Tasks
Staying compliant with IRS regulations is a crucial part of managing your Solo 401k. Ignoring annual maintenance requirements or filing errors can lead to unnecessary penalties and headaches. By addressing your solo 401k deadlines, you ensure your plan remains in good standing and continues to provide its valuable tax advantages.
Annual Maintenance Requirements
Every year, Solo 401k participants must perform basic maintenance tasks to ensure their plan operates correctly. This includes reviewing your plan documents to confirm they are up-to-date and reflect any recent regulatory changes. It’s also important to verify that your plan operations align with IRS guidelines. This means ensuring contributions, withdrawals, and investments comply with the rules specific to Solo 401k plans.
If you’ve made changes to your business structure or investment strategy, take time before year-end to address these updates in your plan documents. Meeting these solo 401k deadlines will safeguard your plan from potential audits or compliance issues.
Form 5500-EZ Filing
If your Solo 401k plan exceeds $250,000 in total assets as of December 31st, you are required to file Form 5500-EZ with the IRS by July 31st of the following year. This form provides details about your plan’s assets and operations. Filing mistakes or missing the submission deadline can result in penalties, so it’s essential to ensure accuracy.
To prepare Form 5500-EZ for the 2024 tax year:
- Gather accurate records of your plan’s contributions, distributions, and investment performance.
- Calculate the total value of your plan’s assets as of December 31, 2024.
- Submit the form electronically through the Department of Labor’s EFAST2 system by July 31, 2025.
Even if you’re not required to file Form 5500-EZ, maintaining accurate records as part of your solo 401k deadlines ensures you’re ready for future reporting requirements.
Audits and Reviews
Performing an annual self-audit of your Solo 401k plan is a proactive way to ensure compliance. Review your contribution records, account statements, and plan documents to identify any discrepancies or potential errors. Addressing these issues before the year-end prevents them from escalating into costly compliance violations.
Assess Your Investment Portfolio
Year-end is the ideal time to assess your Solo 401k investment portfolio. Reviewing performance, rebalancing your investments, and evaluating alternative options help you align your retirement savings with your goals while staying mindful of solo 401k deadlines.
Year-End Portfolio Review
Start by evaluating how your investments have performed throughout the year. Are your holdings meeting your expectations? Are they aligned with your retirement timeline and risk tolerance? Use this opportunity to identify any underperforming assets or overexposed areas that may need adjustment.
Rebalancing Strategies
Rebalancing ensures your portfolio maintains its intended allocation between asset classes, such as stocks, bonds, and cash. Over the course of the year, market fluctuations may cause some investments to grow disproportionately, increasing your risk. By rebalancing before December 31st, you can realign your portfolio to match your target allocation, reducing unnecessary exposure to market volatility.
Alternative Investments
For Solo 401k plans that include alternative assets like real estate or cryptocurrency, it’s important to evaluate these holdings carefully. Alternative investments often have unique considerations, such as liquidity and market volatility. Ensure these assets align with your long-term goals and confirm their valuations for accurate reporting when meeting solo 401k deadlines.
Consider Tax Planning Opportunities
The end of the year presents valuable tax planning opportunities for Solo 401k participants. By maximizing tax benefits and considering strategic moves, you can significantly reduce your taxable income while preparing for long-term financial success.
Tax Benefits of Contributions
Solo 401k contributions are a powerful way to lower your taxable income. Pre-tax contributions reduce your adjusted gross income (AGI), which may also help you qualify for additional tax credits or deductions. For high-income earners, this tax-deferral advantage is particularly impactful when managed alongside other year-end planning strategies.
End-of-Year Roth Conversions
A Roth conversion allows you to move pre-tax funds in your Solo 401k to a Roth Solo 401k. While you’ll pay taxes on the converted amount in the year of the conversion, future earnings grow tax-free, and withdrawals in retirement are not taxed. If you anticipate being in a higher tax bracket in the future, this strategy can offer long-term savings. Completing a Roth conversion by December 31st ensures it applies to your 2024 tax year.
Qualified Charitable Distributions (QCDs)
If you are 70½ or older and subject to RMDs, consider using a Qualified Charitable Distribution (QCD). A QCD allows you to donate directly from your Solo 401k to a qualified charity, satisfying your RMD obligation while excluding the distribution from your taxable income. This option benefits both your tax planning and philanthropic goals.
Take Action Before December 31st
As the year winds down, meeting your solo 401k deadlines is essential to protecting your retirement plan and maximizing its benefits. From reviewing your contributions and investments to staying compliant with IRS requirements, taking these proactive steps will position you for financial success in 2025.
Remember the key tasks discussed:
- Maximize your 2024 contributions.
- Meet required compliance and reporting deadlines.
- Assess your portfolio and leverage tax-saving opportunities.
The time to act is now. Avoid last-minute stress by planning ahead and ensuring your Solo 401k is in order before December 31st. Contact Nabers Group, we can help you navigate your plan with confidence.
