December 31 Deadline Crucial for Solo 401(k) Establishment to Maximize 2025 Contributions

Self-employed individuals aiming to maximize their 2025 retirement savings through a Solo 401(k) plan face a critical deadline: the plan must be established by December 31, 2025. While funding can occur later, setting up the plan by year-end is essential to preserve the ability to make contributions for the current tax year. This guidance comes from financial expert Ankur Nagpal, who emphasized the importance of this timing.

According to Nagpal, individuals interested in a Solo 401(k) should "try and do this by December 31: Set up the Solo 401k plan [and] Make an election for how much you want to contribute." This initial setup allows for contributions to be made well into the following year. The actual funding of the plan can then be completed "before tax day" of the subsequent year, typically April 15, or October 15 with a tax extension.

A Solo 401(k), also known as a one-participant 401(k), is designed for self-employed individuals with no full-time employees other than themselves or a spouse. This retirement vehicle offers significant tax advantages, including high contribution limits that combine both employee deferral and employer profit-sharing contributions. For 2025, the aggregate contribution limit can reach up to $70,000 for those under 50, with additional catch-up contributions for older individuals.

Establishing the plan by December 31, 2025, ensures that self-employed individuals retain the flexibility to determine their final contribution amounts based on their income and make those contributions up until their business tax filing deadline in 2026. This allows for strategic tax planning and the potential utilization of advanced strategies like the Mega Backdoor Roth. Financial experts advise that formal election of contribution amounts should also occur by year-end.

The distinction between establishing the plan and funding it is key for compliance with IRS regulations. Missing the December 31 establishment deadline for the current tax year means forfeiting the opportunity to contribute for that year. Therefore, proactive planning is crucial for self-employed professionals seeking to leverage the full benefits of a Solo 401(k) for their retirement savings.