By Ed O’Neal, Senior Vice President and Manager, Retirement Plans
We’ve now gotten far enough into 2022 that many taxpayers have started to carefully assess their tax situation for the 2021 tax year. And for many business owners, this is the time of year that they begin to look for ways to help reduce taxable income, while also searching for opportunities to increase retirement savings.
Employer-sponsored retirement plans represent a great way for business owners to accomplish both of these objectives, and recently passed legislation (the Setting Every Community Up for Retirement Enhancement Act of 2019, or SECURE Act) provides some new guidelines that might be helpful for business owners still looking for a solution for the 2021 tax year.
New Deadlines for Establishing a Plan
Prior to the SECURE Act, business owners had limited options for establishing a new retirement plan after the end of a tax year. For many years, the SEP IRA was the only employer-sponsored retirement plan option that could be both established and funded after the close of a tax year, with the deadline being the due date of the tax returns for the business owner (including extensions). The SECURE Act expanded the plan types available to be established after the tax year end by including 401(k), profit sharing and defined benefit plans. This expansion of plan options will allow business owners greater flexibility in selecting the plan design that best meets their tax planning and retirement savings goals.
Despite this expansion created by the SECURE Act, there are still several important retirement plan deadlines for business owners to be aware of. For example, the date for establishing a SIMPLE IRA remains unchanged and has a much earlier deadline that other plan types – October 1 of the effective year of the plan. And although 401(k) plans can now be established after the end of the tax year, employee elective deferral contributions to those plans must be made by the last day of the plan/tax year, with employer contributions permitted up until the due date of the business owner tax returns (plus extensions).
Other Important Plan Deadlines
Additionally, business owners establishing new retirement plans, or maintaining existing plans, will need to be mindful of a variety of important dates including Department of Labor plan filing deadlines for qualified retirement plans (i.e., Form 5500 filings), and ensuring that employee elective deferrals are withheld and deposited as soon as possible by business owners – generally within 15 days for 401(k) plans and 30 days for SIMPLEs.
Whether considering a new retirement plan or reviewing contribution deadlines, remember to consult with your tax or legal advisor to review the impact to your personal and business tax situation. Consider speaking with your financial advisor to review your retirement plan alternatives.
Benjamin F. Edwards does not provide tax advice; therefore, it is also important to consult with your tax professional for additional guidance tailored to your specific situation.