Reply To: solo 401K questions

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#71516
Kaye Thomas
Moderator

Congratulations on having the kind of income that raises these questions.

[Edited to remove an incorrect comment.]

Ordinarily you don’t need an EIN for a sole proprietorship with no employees, but you do need one to establish a solo 401k. It may be possible to get started with “EIN pending,” which may be why you heard from Fidelity that you don’t need one to start the plan. But that procedure is a holdover from the days when it could take days or weeks to get an EIN through the mail. Nowadays you can quickly and easily get one online:

https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online

Your “employee contribution” will be deductible in the year made. If you wait until after the end of the year to contribute, it will be a 2022 contribution, and you’ll have lost the opportunity to contribute for 2021. The information you received from Vanguard was incorrect.

Your “employer contribution” for 2021 can be made in 2022 by the due date of your 2021 return, but only if the plan has been established by the end of 2021.

I don’t know which version of HRB software works for this. I think all the major tax software firms require a much more expensive version when dealing with a sole proprietorship, with limited exceptions designed to attract relatively low-income gig workers.

  • This reply was modified 1 week, 5 days ago by Kaye Thomas.