By Ian Berger, JD
IRA Analyst
Thinking of opening up a new solo 401(k) plan for 2026? Fortunately, you won’t have to rush to get it done by the end of the year.
A solo 401(k) is an excellent retirement savings vehicle for self-employed business owners with no employees (other than their spouse). That’s because the IRS treats a business owner with a solo 401(k) as wearing two hats – one as an employee and one as an employer. As an employee, you can make elective deferrals up to $24,500 for 2026, with catch-ups of $8,000 if age 50 or older, or $11,250 if ages 60-63. As an employer, you can also make an additional contribution up to 20% of adjusted net earnings (for unincorporated businesses). Keep in mind there’s an overall limit on combined elective deferrals and employer contributions. For 2026, that maximum is $72,000, plus catch-ups. For many eligible business owners, a solo 401(k) allows for higher contributions than are possible under a SEP or SIMPLE IRA plan.
Businesses have until the due date for the corporate tax return, including extensions, to establish a retirement plan for the prior year. So, depending on the type of business, a new plan for one year can be opened up as late as September 15 or October 15 of the next year. Until recently, however, only employer contributions – not employee elective deferrals – could be funded retroactively for the prior year (by the September 15 or October 15 deadline). Elective deferrals still had to be elected and funded by December 31 of the prior year.
The 2022 SECURE 2.0 Act liberalized that rule for certain owner-only businesses – with one catch. Sole proprietors (and “disregarded” single-member LLCs) can now establish a new retroactive solo plan and fund both employer contributions and elective deferrals for the prior year. The catch is that retroactive elective deferrals must be elected and funded by the following April 15. It would not be possible for elective deferrals to be made if a plan hasn’t already been opened by that April 15. So, if you want to establish a new solo 401(k) in 2027 for 2026 funded with prior-year elective deferrals, you’ll have to get the plan up and running by April 15, 2027. You would still have until September 15 or October 15, 2027, to fund prior-year employer contributions.
Keep in mind that this rule applies only to brand new solo 401(k) plans. It does not allow a participant in an existing solo 401(k) to make a retroactive elective deferral election after the end of the year. However, if a timely elective deferral election has been made, the deferral can still be funded after year end.
If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.
https://irahelp.com/how-to-open-a-new-solo-401k-plan-retroactively/