Planning for contributions
The end of the year is approaching, and with it, the opportunity to make contributions to your Solo 401k.
A few simple steps can help you prepare:
1. Budget time to read a few articles or videos
Set aside an hour or two this weekend to read or watch our contribution resources. We have plenty of resources to help you.
The following overview addresses how to calculate, how to make, and when to make contributions:
The following video gives an overview on calculating contributions:
Understanding contributions goes a long way in helping you feel prepared. Setting aside the time to read and watch the above is an easy first step.
2. Mark the deadline for your contributions on your calendar
Different factors affect the deadlines for your Solo 401k contributions. The deadline can differ based on the type of contribution you are making, the type of business you have, and the fiscal year of your business.
Make sure to mark the deadline(s) for these contributions on your calendar, so you have plenty of time to prepare and make them for this year.
3. Do some initial calculations
Your Solo 401k allows you to make different types of contributions- as employee and as employer.
The employee and employer contributions differ in how they are calculated. Factors such as: how much your business earnings/compensation for the year, your current age, and your participation in other employer-sponsored plans can affect the contribution amounts to your Solo 401k.
Start by grabbing a pencil and paper and input a few numbers to come up with some initial calculations:
4. Confirm your calculations with your CPA
Your CPA can confirm both your business earnings/compensation for the year, which serves as the basis for your contributions, and the contribution amounts you can make to your Solo 401k.
5. Prepare for your contributions
Solo 401k contributions must be documented and, depending on your type of business, processed a certain way.
All contributions must be documented using our contribution forms. These forms document the election to make the contribution and must be dated by December 31st of the year for which the contribution is made. The completed and signed contribution form must be kept in your file as Plan Administrator of your Solo 401k.
If you have a corporation or an LLC with an S-corp election, you will need to notify your payroll provider of your planned Solo 401k employee contribution. Your Solo 401k employee contribution must be processed through payroll. This typically occurs before the end of December, and the payroll provider must be notified and given time to process your employee contribution.