Looking to open a Solo 401k plan? Get started today – The Carry Solo 401k Plan is a featured-packed self-directed account that lets you invest in both traditional and alternative assets, take out a loan, or do a Mega Backdoor Roth conversion.
Maximize Your Retirement Savings With a Solo 401k
As a business of one, you can contribute more and potentially save more on taxes.* Carry’s Solo 401k is built for entrepreneurs, freelancers, and high earners who want flexible investing and bigger retirement contributions, all in one streamlined plan.
LEARN MORE*Solo 401(k) eligibility and contribution limits depend on IRS rules. Carry does not provide tax advice, consult a tax advisor. Carry Advisors LLC, an SEC-registered investment adviser, provides investment advisory services for discretionary and non-discretionary accounts (e.g., Solo 401(k), IRA, taxable brokerage accounts). Bank and trust accounts are not advised by Carry Advisors. Brokerage accounts are introduced by Global Carry LLC and carried by DriveWealth LLC, both members FINRA/SIPC. Advisory fees may apply and additional disclosures are described in our Form ADV and CRS.
Managing a Solo 401k involves more than just setting up the account and making deposits. For self-employed individuals and small business owners, one critical but often overlooked step is formally electing annual contributions. This election determines how much you intend to contribute as the “employee” portion of your plan and ensures the IRS recognizes those contributions as valid. Without it, you may lose the ability to make employee contributions for that year, which could reduce your potential tax advantages and overall retirement savings.
In this article, we’ll explain what a Solo 401k election is, why it matters, and the key deadlines you need to meet to help you avoid compliance issues.
What Is a Solo 401k Election?
A Solo 401k election is a written record stating:
- The amount you intend to contribute as the employee
- Whether the contribution will go to a pre-tax or Roth account
This record must generally be made before your salary is considered earned. For self-employed individuals, that means you must document your election before the end of the calendar year.
📌 If you use Carry’s Solo 401k platform, your contribution election record is automatically created when you enter your contribution amounts during setup.
Why Employee and Employer Contributions Matter
With a Solo 401k, you act as both employer and employee, so the IRS requires clear documentation of your contributions.
✅ Employee contributions – These are also called employee elective salary deferrals. They represent part of your pay that you choose to contribute to your Solo 401k instead of keeping as ordinary income.
✅ Employer contributions – These are also called employer profit-sharing contributions. They are made from your business as a separate amount, not deducted from your salary.
Each type follows different IRS rules, has separate limits, and is reported differently for tax purposes.
When Is the Deadline to Make an Election?
Solo 401k plan elections generally must be made by the last day of the calendar year, on December 31.
If you want to make employee contributions for 2025, you must complete your election form no later than December 31, 2025.
If you don’t yet have a Solo 401k but want to make employee contributions for the current year, you still need to make the employee elective-deferral election by December 31. This applies even though SECURE 2.0 allows sole proprietors to adopt a new Solo 401k plan up to their tax filing deadline (without extensions).
📝 Exception: If this is your first year of setting up a Solo 401k for an unincorporated sole proprietorship, you may have until your personal tax filing deadline (excluding extensions) to complete the election.
Once the election is made, you generally have until your tax filing deadline (including extensions) to actually deposit the contributions into your Solo 401k plan. You should deposit the funds as soon as it is practicable to do so.
📌 Also Read: Solo 401k Contribution Limits & Deadlines
What Happens If You Don’t Make an Election?
If you don’t make an election:
❌ You cannot make employee contributions for that year.
❌ Any contributions made without an election would need to be returned.
❌ Your tax returns might need to be amended, and penalties may apply.
❌ In severe cases, the IRS could disqualify your entire Solo 401k plan, which may lead to significant tax consequences.
Can a Deposit Receipt Serve as Proof of Election?
No, a deposit receipt only shows that you made a deposit. The IRS requires actual documentation that you elected the contribution before making it.
Should You Still Make an Election If You Contribute Before December 31?
Yes. Even if you deposit your contributions before year-end, you still need a documented election. Maintaining this record helps demonstrate that your plan operates in compliance with IRS requirements.
Keeping Your Solo 401k Elections on Track
Making timely and accurate Solo 401k elections helps maintain compliance and protects your ability to make employee contributions for the year. While the process is straightforward, missing the deadline or failing to document your election could result in lost contribution opportunities or IRS issues.
Tips to Stay Organized:
✅ Mark December 31 on your calendar as your annual election deadline.
✅ Save a copy of your election form with your tax records.
✅ Confirm the amount you plan to contribute before making deposits.
✅ Talk to a qualified tax professional if you’re unsure about timing or eligibility.
Taking these steps may help you avoid errors and keep your Solo 401k plan running smoothly.
📌 For more guidance, check out these articles to learn more about Solo 401k rules and strategies:
Disclaimer:
The Carry Learning Center is operated by The Vibes Company Inc. (“Vibes”) and contains generalized educational content about personal finance topics. While Vibes provides educational content and technology services, all investment advisory services discussed on this website are provided exclusively through its wholly-owned subsidiary, Carry Advisors LLC (“Carry Advisors”), an SEC registered investment adviser. The information contained on the Carry Learning Center should not be construed as personalized investment advice and should not be considered as a solicitation to buy or sell any security or engage in a particular investment, accounting, tax or legal strategy. Vibes is not providing tax, legal, accounting, or investment advice. You should consult with qualified tax, legal, accounting, and investment professionals regarding your specific situation.
The accounts, strategies and/or investments discussed in this material may not be suitable for all investors. All investments involve the risk of loss, and past performance does not guarantee future results. Investment growth or profit is never a guarantee. All statements and opinions included on the Carry Learning Center are intended to be current as of the date of publication but are subject to change without notice.
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