401(k) adoption, election - year confusion

I am self-employed and decided to open a 401(k) very last minute in Dec. I signed and submitted the adoption docs to fidelity on 12/31/2020 with an election of 10,000 for 2020. I meant to make that election for 2021.

Fidelity opened my 401(k) mid-jan. Does that mean my 401(k) is active 2021 onwards and NOT for 2020? Do I still have to contribute 10k for 2020 or can that little bit of election on the adoption agreement be forgotten/ignored?

3 hours ago, Rachelk said:

I am self-employed and decided to open a 401(k) very last minute in Dec. I signed and submitted the adoption docs to fidelity on 12/31/2020 with an election of 10,000 for 2020. I meant to make that election for 2021.

Fidelity opened my 401(k) mid-jan. Does that mean my 401(k) is active 2021 onwards and NOT for 2020? Do I still have to contribute 10k for 2020 or can that little bit of election on the adoption agreement be forgotten/ignored?

 

 In the unlikely event that you had no self-employment income in 2020 your election would mean nothing and can be ignored.

In the alternative, what is the effective date of the plan?  If it is 1/1/2021 or later, again, your election would mean nothing and can be ignored.

In the alternative, if the plan was effective some date in 2020, but the document allows for a separate effective date just for salary deferrals and that date is 1/1/2021 or later, again, your election would mean nothing and can be ignored.

Does one of these three scenarios fit your facts?

It will depend on when your plan is effective.  If they made it effective in 2020, you can make contributions for 2020.  Your TPA or CPA should calculate the amount available for 2020.  No more than 10,000 should be classified as deferrals since you made the election in that amount.  You can make additional contributions that are considered employer contributions if your income allows for it. 

For 2021 you can update your 2021 deferral election any time up to the last day of the year.   You will still have until your tax filing deadline for 2021 to make your employer deposits to the plan. 

On 2/3/2021 at 4:27 AM, Mike Preston said:

 In the unlikely event that you had no self-employment income in 2020 your election would mean nothing and can be ignored.

In the alternative, what is the effective date of the plan?  If it is 1/1/2021 or later, again, your election would mean nothing and can be ignored.

In the alternative, if the plan was effective some date in 2020, but the document allows for a separate effective date just for salary deferrals and that date is 1/1/2021 or later, again, your election would mean nothing and can be ignored.

Does one of these three scenarios fit your facts?

I’m a stay at home mom, and started working full-time for the first time late last year. I did some part time in the past, when I was at college, 15 odd years ago! I received a check from my client in January for work done in Dec. My contract with them is up end Feb  but it’s lucrative project and I was hoping to finally put some money away for retirement.

Unfortunately I put 3k in a SEP IRA and now fidelity is telling me I cannot have a SEP and 401(k) in the same year. I don’t have enough income in 2020 for a 3k SEP contribution, so that would have to be for 2021.

My 401k effective date was 01/01/2020 but I have some startup expenses for my business that, if I write off, don’t have any net income for 2020.

Thus looks like 2020 -> no net income, no retirement contributions 

2021 -> SEP + traditional IRA

is there any way for me to scrap the SEP and just do 401k + traditional IRA for 2021 without early withdrawal fees/penalties? Fidelity doesn’t let you just reallocate. Is there any advantage to having the SEP over a 401k?

thanks!