IRA Contribution Deadlines: Two Out of Three IRA Types Can’t be Extended

You have until April 18th, 2017 to make 2016 IRA contributions for Roth and Traditional IRAs. If you’re self-employed and are using a SEP, your deadline is determined by your company’s tax filing deadline (e.g. s-corp, partnership, or sole prop). So, if you were an s-corp or partnership in 2016, then your filing deadline was March 15th, 2017. II you are a sole prop, then the deadline is April 18th, 2017. If you extended your company return, that extension will also apply to your SEP IRA contributions. The table below breaks down the deadlines and extension options for Traditional, Roth and SEP IRAs.

Type of IRAContribution TypeDeadline Details
Traditional IRATraditional, DeductibleApril 18th, 2017: Due Date for Individual Tax Return Filing (not including extensions). IRC § 219(f)(3); You can file your return claiming a contribution before the contribution is actually made.  Rev. Rul. 84-18.
Roth IRARoth, Not DeductibleApril 18th, 2017: Due Date for Individual Tax Return Filing (not including extensions). IRC § 408A(c)(7).
SEP IRA Employee, DeductibleN/A: Employee contributions cannot be made to a SEP IRA plan.
Employer Contribution, DeductibleMarch 15/April 15th: Due Date for Company Tax Return Filing (including extensions). IRC § 404(h)(1)(B).

As outlined above, you have until the 2016 individual tax return deadline of April 18th, 2017 to make 2016 Traditional and Roth IRA contributions. The deadline for Traditional and Roth IRAs, however, does not include extensions. So, even if you extend your 2016 tax return, your 2016 Traditional and Roth IRA contributions are still due on April 18th, 2017.

SEP IRA contribution deadlines are based on the company tax return deadline, which could be March 15th if the company is taxed as a corporation (“c” or “s”) or partnership, and April 15th if it is a sole proprietorship. Keep in mind that this deadline includes extensions, so if you extend your company tax return filing, you will extend the time period to make 2016 SEP IRA contributions.

SEP IRA VERSUS SOLO 401(k): WHICH IS BEST FOR YOU?

sep-ira-vs-solo-401kSelf-employed persons have two options when it comes to establishing a retirement account. If you are self-employed and you want to save for retirement, two of your primary options will be a SEP IRA or a Solo 401K. The SEP IRA is a super-charged IRA account that runs off of IRA rules while the Solo 401(K) is an employed based retirement plan used solely for the business owner(s) when they have no other employees.

Both a SEP IRA and a Solo 401(k) can be self-directed and invested into real estate, private company stock, or precious metals. Under a SEP IRA, you will have a self-directed IRA custodian. Under a Solo 401K, you can serve as your own trustee and administrator or you could use a custodian.

While a SEP IRA and a 401(k) can be used by business owners with employees other than the business owners, this article compares the two account options for those who are self-employed with no other employees other than themselves (and partners and family).

 

SEP IRASolo 401K
Contribution Max$53,000 max annual contribution (it takes $265K of self-employment income to max out). Contributions are all employer contributions.$53,000 max annual contribution (it takes $140K of wage/se income to max out). Contributions are employee and employer.  Because a solo K is easier to max out each year on less income, it gives greater opportunity for utilization over the SEP IRA.
Traditional & RothAll SEP contributions are traditional dollars and all funds in a SEP must be traditional dollars. SEP IRA funds can be converted to a Roth IRA though.A solo 401(k) can have a traditional account and a roth account within the same plan. You can convert traditional sums over to Roth as well. Because you can have Roth accounts and Traditional account in the 401K, that provides more options in the solo 401(k).
Contribution & Establishment DeadlineDate of the company tax return INCLUDING extensions. You may also establish a new SEP IRA at the time you make the first contributions even if that is for the prior tax year. For people making contributions for the first time for a prior year (e.g. in April of 2015 for 2014 contributions), this is a big benefit as a 401K) cannot be used unless it was set up in the tax year of the contribution.Date of the company tax return INCLUDING extensions. However, for new plans, they must be established by December 31 of the year you are seeking to make contributions. This means you have to plan ahead and establish the 401(k) before the end of the year.
Custodian RequirementAn IRA must have a third party custodian involved on the account (e.g. bank. Credit union, trust company) who is the trustee of the IRA.A 401(k) can be self trusteed, meaning the business owner can be the trustee of the 401(k). This provides for greater control but also greater responsibility.
Investment DetailsA SEP IRA is invested through the self directed IRA custodian. A SEP IRA can be subject to a tax called UDFI/UBIT on income from debt leveraged real estate.A Solo 401(k) is invested by the trustee of the 401(k) which could be the business owner. A solo 401(k) is exempt from UDFI/UBIT on income from debt leveraged real estate.

 

In sum, there are many differences between a solo 401(K) and a SEP IRA but the solo 401(k) has proven to be an excellent tool that provides greater flexibility when saving and investing for retirement.