"Solo 401(k)" [note the quotations] Contribution Deadline from Online Article

Following is an excerpt from an online article prepared by a law firm.  Although it is outdated, I can confirm that they are still taking this position.  I understand it for sole-proprietors but not for others.  Have I missed something?  I appreciate the exepertise represented on this forum.

"Both employee [emphasis added] and employer contributions can be made up until the company’s tax return deadline including  extensions. If you have a sole proprietorship (e.g. single-member LLC or schedule C income) or C-Corporation, then the company tax return deadline is April 18th, 2022. If you have an S-Corporation or partnership LLC, the deadline for 2021 contributions is March 15th, 2022. Both deadlines (March 15th and April 18th) to make 2021 contributions may be extended another six months by filing an extension. This is a huge benefit for those that want to make 2021 contributions but who won’t have funds until later in the year to do so.

While employee [emphasis added] and employer contributions may be extended until the company tax return deadline, you will typically need to file a W-2 for your wages (e.g. an S-Corporation) by January 31st, 2022. The W-2 will include your wage income and any deduction for employee [emphasis added] retirement plan contributions will be reduced on the W-2 in box 12. As a result, you should make your employee [emphasis added] contributions (up to $19,500 for 2021) by January 31st, 2022 or you should at least determine the amount you plan to contribute so that you can file an accurate W-2 by January 31st, 2022. If you don’t have all or a portion of the funds you plan to contribute available by the time your W-2 is due, you can set the amount you plan to contribute to the 401(k) as an employee contribution, and will then need to make said contribution by the tax return deadline (including extensions)."

A few of things are glaringly missing.

The article focuses on when the "employee contribution" (read elective deferral) is funded.  The article says "you can set the amount you plan to contribute" but does not note that you have to set the amount by December 31st of the tax year. https://www.gpo.gov/fdsys/pkg/CFR-2010-title26-vol5/pdf/CFR-2010-title26-vol5-sec1-401k-1.pdf

The article focuses on W-2 reporting which is appropriate when the entity is taxed as an S-corp or C-corp, but I would say from my experience that most owner-only plans are sponsored by sole proprietors who more likely are reporting Schedule C income, or by partners who are reporting K-1 income. 

The article does not emphasize that if the tax return is filed or not extended by the original due date, then that blows up the opportunity to fund up to the extended deadline.

Is the article wrong? - not necessarily.  Is the article likely to mislead a reader whose situation does not match the articles underlying assumptions? - almost certainly.

Yeah, honestly I've never seen the funding or reporting tied to Jan 31, the due date for the W-2. That's misleading at best.

I still take the position that contributions should be determined by Dec 31 (for a self-employed person*, that means having a form on file, for a corporation, that means having a form on file and having the money withheld from a paycheck). Actual deposit deadlines are a different matter; for self-employeds, it boils down to the due date of the return, for a corporation, it goes to the 401(k) deposit rules (generally 7 biz days). 

*I know that this has been debated here and elsewhere and it seems to be generally ok to decide, for a self-employed, as late as the due date of the tax return. But the spirit of the law, in my mind, says it should be decided by Dec 31 and we try for that.

I appreciate the comments.  These are the same points that concerned me, and I am glad to be in good company.

Being not fully tuned in to "new" developments, I should have commented that sole proprietors can now set up a 401(k) retroactively, so apparently there is not really any concern about making retroactive elections, at least for sole props. How this is good tax policy I don't know, but I digress.

The new § 401(b)(2) opportunity (for plan years that begin after December 29, 2022) to make a § 401(k) cash-or-deferred election after the last day of the year to which the election would apply can be available only for the plan’s first plan year, only if the election is made by the person who owns the entirety of an unincorporated business, and only if she is the only employee (a deemed employee) of that unincorporated business.

Otherwise, “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.” 26 C.F.R. § 1.401(k)-1(a)(6)(iii) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(a)(6)(iii).

When such an elective contribution must or should be paid into the plan’s trust might be governed and influenced by other law. Other law might include ERISA or, for a plan ERISA does not govern, State law. And other law might include relevant tax law, including about tax returns and tax-information reporting.

4 hours ago, Peter Gulia said:

The new § 401(b)(2) opportunity (for plan years that begin after December 29, 2022) to make a § 401(k) cash-or-deferred election after the last day of the year to which the election would apply can be available only for the plan’s first plan year, only if the election is made by the person who owns the entirety of an unincorporated business, and only if she is the only employee (a deemed employee) of that unincorporated business.

Thanks Peter. That makes it even more curious, as far as tax policy goes.

In some ways, the added bit in the statute follows a practical reality.

When the human who makes an election and the human who receives and records the election are the same human, there might be little or no obvious evidence about exactly when something happened.

While a good practitioner doesn’t tell her client to create false evidence, some would suggest: “You should search your records carefully to find the election you signed that December.”

Not many IRS examiners have the time and tools to uncover that a paper election dated December 26, 2022 wasn’t signed, or even written, until April 2023.

The new tolerance is only for a first year. After, the proprietor or sole member will need to remember the need for the by-the-end-of-the-year election.

Some business owners find it’s simpler to elect one’s § 401(k) deferral, declare one’s nonelective contribution, and pay both into the plan trust all before the year ends.

On 12/15/2023 at 3:44 PM, Peter Gulia said:

The new tolerance is only for a first year. After, the proprietor or sole member will need to remember the need for the by-the-end-of-the-year election.

So tax policy is that it's ok to retroactively make an election for the first year, but after that you must do it before the end of the year. What sense does that make? And why should sole proprietors get a break like that? I'm not arguing with you, just posing rhetorical questions. (The answers are - someone asked for it, and Congress is too busy looking for donations to understand any of this stuff, and they said yes.)

Another clue is that the Joint Committee on Taxation estimated the provision as having a “negligible revenue effect”, even over the whole ten-year budgeting period.