Solo 401k

[jjtrcka221]

If a self employed person currently has a sep ira and wants to start a solo 401k, can they switch in the same year?

They have have made 2024 contributions to the sep (actually paid in 2025 for 2024). 

[Just-Lisa-Now-]

I thought a solo 401k had to be setup before the end of the year?  maybe that changed, its been a long day

[jjtrcka221]

This one will be setup within a month. I know they need to close the sep ira also. Don't think they can have both at the same time. I just want to be sure they can make 2025 contributions to the 401k even though the sep was still open for a couple of months during the same year. 

[Just-Lisa-Now-]

https://carry.com/learn/contribute-to-solo-401k-and-sep-ira#:~:text=If%20your%20SEP%20IRA%20was,plan....

https://www.irafinancialgroup.com/learn-more/solo-401k/solo-401k-and-sep-ira/

[jjtrcka221]

Thanks. I had seen those both also.  Definitely can't have both at the same time. But I just want to make sure you can close one, and open another in the same year.

[nancy2]

Pretty sure a 401K has to be set up and funded before year end.  The "company side" of the contribution you might be able to fund up until the filing deadline but the plan must be set up still by year end.  A SEP IRA can be set up until the filing deadline.

I think you can have both but you still have to follow the contribution limits.  Meaning, if your allowed SEP contribution is 25,000 and the solo 401k has a limit of 50,000, the total limit is 50,000 but you can put 25,000 into the SEP.  And if you did you could only put 25,000 into the 401K,  Of course, within the 401K you also have the employee & employer limits you have to monitor.  It's sort of complicated to have both so you have to be careful.  

[TaxGuyBill]

They can have both.  But the employer contribution limit applies to the combined contributions between the two plans.

One of the Secure Acts allow a 401k to be set up and contributed to by the due date of the employer's return.

[qbteachmt]

There is a First Year Retroactive provision:

SECURE 2.0 legislation added a benefit for sole proprietors establishing a 401(k) plan. Specifically, a new 401(k) plan can be adopted in 2025 and contributions can be counted as 401(k) deferrals for the 2024 year.