QRP & Solo 401k Contribution Deadlines
Checkbook Solo 401K and Checkbook SEP-IRA Contribution Deadline. The deadline for contributions to Self-Directed Solo 401(k) Plans and Self-Directed SEP-IRAs is the tax return due date of the business sponsoring the plan, including extensions. Therefore, the contribution deadlines depend on the type of business that sponsored the plan – sole proprietorship, partnership, S-corporation, C-corporation, or LLC taxed as any of the foregoing – and whether you timely file for a tax return filing extension. Filing extensions are especially helpful for those that want to make 2020 contributions, but don’t yet have funds available to do so by the initial required filing date.
W-2 Coordination: Forms W-2, reflecting wages and related tax-reporting for S-Corps/C-corps are filed by 1/31/2020. Therefore, you should ensure coordination of employee deferral contributions with payroll processing, so that they be properly reflected on your W-2.
Deferral Elections: Although deferral contributions can be made to the plan after the end of the year, deferral elections by owners of unincorporated businesses must be made by 12/31/2020. Deferral elections for owners of incorporated businesses must be made prior to the payroll(s) from which the contribution(s) is withheld.
QRP & Solo 401k Filing Requirements
Forms 1099-R for Solo 401k Distributions and 401k In-Plan Roth Conversions. Forms 1099-R for Solo K distributions must be provided to plan participants by January 31, 2021. Forms 1099-R must be filed with the IRS by February 28, 2021 if paper filed or by April 2, 2021 if electronically filed.
Form 945, Annual Return of Withheld Federal Income Tax: Used to report withheld federal income tax from nonpayroll payments including funds withheld from QRP & 401k distributions.
Form 5500-EZ for certain Solo 401k Plans. If Solo 401k plan assets exceeded $250,000 as of December 31, 2020 – or at the end of any prior year – a Form 5500-EZ is due to the IRS by July 31, 2021. Form 5558 (Application for Extension of Time to File Certain Employee Plan Returns) can be filed with the IRS on or before the normal due date to receive an automatic two-and-a-half-month extension to October 15. Regardless of plan asset value, Form 5500-EZ must be filed for the year in which a Solo 401k Plan is terminated. Checkbook IRAs, for which annual IRS reporting is handled by your custodian, are not required to file Forms 5500.
Forms 990-T (UBIT, UBTI, UDFI) For SDIRAs, SD401(k)s, SD-DB Plans. Retirement accounts that generate more than $1,000 in Unrelated Business Taxable Income (UBTI), should file Form 990-T by April 15, 2021. To request an automatic extension of time to file Form 990-T use Form 8868, Application for Automatic Extension of Time To File an Exempt Organization Return.
Form 990-W (Estimated Tax on Unrelated Business Taxable Income for Tax-Exempt Organizations). If UBIT tax liability is expected to exceed $500, estimated tax payments should be made. Payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the tax year.
Solo 401k/QRP Required Minimum Distributions (RMDs)
- RMDs have been suspended for 2020 by the CARES Act.
- Remember that RMDs required from 401(k) plans and 457(b) plans have to be taken separately from each of those plan accounts. Therefore, if you have more than one defined contribution plan, you must calculate and satisfy your RMDs separately for each plan and withdraw that amount from that plan. This differs from the rules that apply to IRAs, for which you may aggregate your RMD amounts for all of your IRAs and withdraw the total from one IRA or a portion from each of your IRAs.
- Remember that designated Solo 401k-QRP Roth accounts are subject to the RMD rules. This, too, differs from the rules that apply to Roth IRAs, for which there are no RMD requirements for while the owner is alive.
- The penalty for failing to take an RMD is very harsh: The amount not withdrawn is taxed at 50%. The account owner should file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with his or her federal tax return for the year in which the full amount of the RMD was not taken. (The penalty may be waived if the account owner establishes that the shortfall in required distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall. In order to qualify for this relief, you must file Form 5329 and attach a letter of explanation.)
- As a 5% or more owner of the business that sponsors a Solo 401k, you must start RMDs by April 1 of the year following the year you turn 72, even if you are still employed by the company and have not yet retired.
- After the first RMD, you must take subsequent RMDs by December 31 of each year, beginning with the calendar year containing your required beginning date.
- Your RMD is generally determined by dividing the adjusted market value of your Solo 401k as of December 31 of the preceding year by the distribution period that corresponds with your age in the Uniform Lifetime Table (Table III in IRS Publication 590-B, Distributions Individual Retirement Arrangements (IRAs). If your spouse is your sole beneficiary and is more than 10 years younger than you, you will use the Joint Life and Last Survivor Expectancy Table (Table II in IRS Publication 590-B).
Solo 401k-QRP Year-End Maintenance Resources
Checkbook Solo 401k 2020 Contribution Calculator: Click here to access a web-based 2020 Solo 401k Contribution Calculator. Note: The calculator may be used to provide an approximation of your allowable 2019 Solo 401k contribution amount, not a precise indication of the correct amount. Your actual contribution amount should be calculated in conjunction with your tax professional. Specifically, those that have both W-2 and self-employment income should be sure to work with a qualified professional when calculating their Solo 401k contributions.
Understanding and Tax Optimizing Your Solo 401k Contributions: Click here for an in-depth discussion of 401k contribution rules and regulations, as well as the tax factors that you should take into account to maximize the tax benefits of your Solo 401k plan.
Notable Regulatory Updates & Resources:
The SECURE Act and CARES Act have altered retirement account compliance & strategy – for the current year and beyond.
- SECURE Act For Self-Directed Investors
- The act allows certain long-term employees who worked fewer than 1,000 hours, but at least 500 hours, in 3 consecutive 12-month periods and have reached age 21 to participate in employer sponsored 401k plan.
- The act increases from 70-1/2 to 72 the age for mandatory distributions (RMDs) from retirement plans.
- The act allows employers to treat retirement plans adopted before the due date of the tax return as adopted as of the last day of the taxable year.
- Note: This only impacts the ability to make employer profit sharing contributions for a prior tax year. It does not create the ability to make deferral elections retroactively.
- The penalties for failure to file retirement plan returns, including forms 5500-EZ, are increased.
- CARES Act For Self-Directed Investors
- RMDs are suspended for 2020