Starting in 2020, employers can elect to treat qualified retirement plans adopted after the close of a tax year, but before the due date (including extensions) of the tax return, as having been adopted as of the last day of the year. The additional time to establish a plan provides flexibility for employers who are considering adopting a plan, and the opportunity for employees to receive contributions for that earlier year.
Before 2020, an employer had to adopt a plan by the last day of year in which it would be in effect. As a result, each year, many employers were rushing to establish a new plan by December 31 to secure a tax deduction for such year. Under the SECURE Act, an employer now has until their business’ tax return due date, plus extensions, to sign a document to establish a plan for the prior year. The tax filing deadline varies based on the employer’s business entity type.
Full details can be found in the bill, H.R. 1994, which became law in 2020.
There is still time to set up a retirement plan for the 2020 tax year. Please contact us at (818) 789 1179 if you have questions.