SECURE Retro SE 401k for 2020

[Flyboyjohn]

SECURE permits retroactive adoption of qualified plans during tax return filing period beginning with 2020 tax years.

Obviously can't include retroactive 401k deferrals for corporate employees receiving W-2s.

But given the long running debate over the "deadline" for self-employed proprietors and partners to make 401k deferrals has anyone considered whether the new provision will allow self-employed to make retroactive 401k deferrals?

For example, some practitioners take the position that 401k deferrals can't be elected or deposited until the amount of self employment income has been determined which can be as late as the extended due date for the tax filing.

So could a "solo K" be adopted by a proprietor on 10/15/2021 to create a 2020 tax deduction? 

[Bill Presson]

I think we've all stated that they have to sign the deferral election by 12/31 of the year in which they are deferring because that's the date the income is deemed to be "earned."

I don't think this changes that.

[Peter Gulia]

(iii) Timing of self-employed individual's cash or deferred election. For purposes of paragraph (a)(3)(iv) of this section, a partner's compensation is deemed currently available on the last day of the partnership taxable year and a sole proprietor's compensation is deemed currently available on the last day of the individual's taxable year. Accordingly, a self-employed individual may not make a cash or deferred election with respect to compensation for a partnership or sole proprietorship taxable year after the last day of that year. See §1.401(k)-2(a)(4)(ii) for the rules regarding when these contributions are treated as allocated.

(iv) Special rule for certain payments to self-employed individuals. For purposes of sections 401(k) and 401(m), the earned income of a self-employed individual for a taxable year constitutes payment for services during that year. Thus, for example, if a partnership provides for cash advance payments during the taxable year to be made to a partner based on the value of the partner's services prior to the date of payment (and which do not exceed a reasonable estimate of the partner's earned income for the taxable year), a contribution of a portion of these payments to a profit sharing plan in accordance with an election to defer the portion of the advance payments does not fail to be made pursuant to a cash or deferred election within the meaning of paragraph (a)(3)(iii) of this section merely because the contribution is made before the amount of the partner's earned income is finally determined and reported. However, see §1.401(k)-2(a)(4)(ii) for rules on when earned income is treated as received.

https://www.ecfr.gov/cgi-bin/text-idx?SID=93bab6d03bb9386c1be48ee7b5de8cce&mc=true&node=se26.6.1_1401_2k_3_61&rgn=div8

[Flyboyjohn]

Acknowledging that the self-employed must make their cash or deferred election no later than the last day of the taxable year might it become standard practice/advice that whenever an unincorporated business is established the self-employed owners all sign an evergreen election that if the business ever retroactively establishes a qualified plan that includes a CODA then the proprietor/partner elects the maximum 401k contribution?

[Bird]

17 hours ago, Flyboyjohn said:

Acknowledging that the self-employed must make their cash or deferred election no later than the last day of the taxable year might it become standard practice/advice that whenever an unincorporated business is established the self-employed owners all sign an evergreen election that if the business ever retroactively establishes a qualified plan that includes a CODA then the proprietor/partner elects the maximum 401k contribution?

We do that when we set up a plan, but I see where you're going...I remember reading something saying "of course that doesn't apply to deferrals" (the retroactive election).  I don't see it in the law as specifically not applying to deferrals.  Nevertheless I'm not sure you can make an election for a plan that doesn't exist.  

[C. B. Zeller]

On 12/30/2019 at 5:01 PM, Flyboyjohn said:

Acknowledging that the self-employed must make their cash or deferred election no later than the last day of the taxable year might it become standard practice/advice that whenever an unincorporated business is established the self-employed owners all sign an evergreen election that if the business ever retroactively establishes a qualified plan that includes a CODA then the proprietor/partner elects the maximum 401k contribution?

This seems like a bad idea if the company has, or ever might in the future, have any employees.