Solo - K set up deadline for 2023

A prospect is wanting to set up a solo K plan for 2023.  My first reaction was the deferral for 2023 is not allowed since it was not elected by 12/31/2023 nor contributed on time.  But wasn't there a exception for first year plan adoption for sole proprietors.  I'm thinking I saw that somewhere.  I will research further but I know this group will know this right off the bat. 

Thanks

Tom

Yes, it's allowed but I think it must be done (plan adopted and deferrals made) by the unextended tax return due date. I believe that's the rule, someone will correct me if I'm wrong. Here is an article stating such. I don't usually rely on Ascensus for technical issues but this agrees with my understanding.

https://www.ascensus.com/industry-regulatory-news/news-articles/retroactive-first-year-elective-deferrals-for-sole-proprietors/

I thought the IRS clarified (in a notice perhaps?) that post year end 401(k) adoption with first year look back elective deferral was OK for self employed. No?

Yes, just do not get benefit of any extensions.

18 minutes ago, Lou S. said:

I thought the IRS clarified (in a notice perhaps?) that post year end 401(k) adoption with first year look back elective deferral was OK for self employed. No?

Not all self employed, only sole proprietors. And it was not IRS, it was Congress, in SECURE 2.0.

This was created by SECURE 2.0 Act 317 and was effective with the enactment of S2.0 (12/29/22).  It modifies Code §401(b)(2) to add:

Quote

In the case of an individual who owns the entire interest in an unincorporated trade or business, and who is the only employee of such trade or business, any elective deferrals (as defined in section 402(g)(3)) under a qualified cash or deferred arrangement to which the preceding sentence applies, which are made by such individual before the time for filing the return of such individual for the taxable year (determined without regard to any extensions) ending after or with the end of the plan’s first plan year, shall be treated as having been made before the end of such first plan year.