When trying to set up a new retirement plan, especially for 2025, the two primary questions to answer are when you can establish the plan and the latest date that you must fund the account by. Answering both questions can help you determine if you need a new account opened and funded by as early as the end of the year or late into next year. The three main retirement plans to choose between are the Simple IRA, SEP IRA, and 401k. Finding the right combination of plan, contribution window, and business type could help save you money and work towards your retirement goals at the same time.
Key Takeaways
- A Simple IRA can only be established between January 1st and October 1st, so it isn’t optimal if your goal is to start a new retirement plan by year-end. Once it’s set up, owners without employees can make contributions until January 30th of the following year, while owners with employees must deposit employee contributions within 30 days of payroll.
- A SEP IRA can be opened at any time up to the tax-filing deadline and follows a simple setup process. Employer contributions must be the same percentage for all eligible employees, and contributions up to 25% of compensation can be made the following year and coded for the prior year.
- A Solo 401k is only for owners with no employees and must transition to a Traditional or Safe Harbor 401k if employees are hired. Like Traditional 401ks, Solo 401ks require a more detailed setup process and can be established up to the tax-filing deadline.
Simple IRA
A business owner can establish a new Simple IRA plan any time in the year from January 1st to October 1st. As a result, a new Simple IRA plan may not be the best year-end move if the goal is to open a new company retirement account. There are some exceptions to this rule for new employers who come into existence after October 1st, but many business owners, as of the publication of this article, could start to set up a new Simple IRA for next year (2026), but not this year.
The general process to establish a new Simple IRA includes a written agreement, notifying employees, and opening the accounts at a financial institution. The written agreement is an IRS form that, once filled out, is kept on hand and not sent to the IRS. That form, along with some disclosures, is generally then sent to any employees who may be eligible to participate in the plan. Finally, once you know how many accounts need to be created (and who is contributing), your financial institution can work with you on the written agreement to open the accounts.
Once Simple IRA plans are established, contributions to the first account for yourself should be relatively simple. For owners with no employees, contributions are often permitted up to January 30th of the following year. This is because employee contributions, which can be up to $16,500 for 2025, need to be contributed to the Simple IRA within 30 days of when they would have otherwise received the income. So, for owners with employees, those funds need to be deposited roughly within a month of their paychecks.
SEP IRA
While the Simple IRA plan creation rules may be more time sensitive to the end of the year, SEP IRA plans are not. Starting a new SEP IRA plan can happen any time before you file your tax returns the following year, including extensions. While that could be good for some owners who want to start a plan at the end of the year, there are certain rules that must be understood. Unlike the Simple IRA, SEP IRA plans only allow employer contributions, and contributions must be the same percentage of compensation for every account in the plan. Self-employed owners won’t have an issue with this, but it could change things if you don’t want to give your employees the same percentage that you give yourself.
Establishing a SEP IRA is similar in requirements to the Simple IRA. There is a written agreement to fill out, notifications to employees, and an opening process with the financial institution. Usually, because there are fewer requirements for the employee (like choosing how much they want to contribute), the process can be faster to open each account. This is also the time to understand exactly who qualifies to participate in the plan, and who does not.
Contributions to the SEP IRAs can happen as late as the filing date of the tax returns. Even though you may send the funds to your financial institutions the following year, they can generally code the contribution for the previous year if done correctly. Calculating the exact contribution amount based on a set percentage (up to 25% of compensation) may not be as simple as most think, however. So, work with your tax adviser and financial institution to make sure this works for your situation.
Solo and Traditional 401k
Solo 401ks are the next step in the progression to a “full-size” retirement plan. They were roughly designed to give owners the benefits of the 401k plans while bypassing a lot of the regulations and testing requirements that otherwise would be needed. It is very important to understand that Solo 401ks are specifically for owners with no employees. Spouses in the business do not qualify as employees in this case. However, as soon as more employees are included, the testing requirements of Traditional 401k plans enter the mix.
Establishing a Solo 401k can be similar to the other retirement plans, but since there are no other employees may be streamlined. Since this will create a new 401k plan, the written agreements and account opening process may be longer to account for the IRS regulations around 401k plans more generally. Make sure to understand how your financial institution will open and establish the Solo 401k, and whether there are any fees associated with doing so.
According to the IRS, Solo 401k’s can be established as late as the filing date the following year. Like SEP IRA plans, contributions for the Solo 401k can also be made on the employee and employer side before the returns are filed. There are many rules around establishment and contribution requirements for 401ks so check with your accountant for exact advice.
Once more employees are added to the company, adopting a Traditional 401k or Safe Harbor 401k would be the final step in the retirement plan progression. These plans offer the most benefits to employers and employees, but also require the most administration, fees, and regulations to address. Technically, these plans could be opened as late as the filing date as well, but generally, the plan creation stage can take weeks or months to finish.
Year-End Moves
Opening a retirement account through a business can be a great way to save for retirement, help your employees, and reduce your tax burden. Understanding the strengths of each retirement plan can help you determine if one plan is right for your company. Opening most retirement plans is not difficult, and working within the deadlines is usually manageable. Ultimately, these plans can be one step to organizing and improving your business and personal finances.
TC Falkner 