The new SECURE 2.0 law fixes a glitch that has made it difficult for new solo 401(k) plans to be opened up retroactively for a prior year.

What is a Solo 401(k) Plan?

A solo 401(k) plan is a great retirement savings vehicle for self-employed business owners with no employees (other than their spouse). In a solo 401(k), the sole proprietor (or other business owners) is considered to wear two hats – as an employee and as an employer. This allows both elective deferrals and employer contributions. The 2023 elective deferral limit is $22,500, or $30,000 if age 50 or older, while the employer contributions maximum is 20% of adjusted net earnings (or 25% of compensation if the business is incorporated). There’s also an overall limit for combined deferrals and employer contributions; in 2023, it’s $66,000 or $73,500 if the $7,500 age-50-or-older deferrals are made.

Maximizing both elective deferrals and employer contributions can result in higher contributions than allowed with a SEP or SIMPLE IRA. However, a provision in the original SECURE Act (“SECURE 1.0”) made that difficult if the sole proprietor wanted to open a solo plan retroactively. The effect of this SECURE 1.0 change was that a solo plan established after the end of the first year could only include employer contributions – not elective deferrals. In other words, a sole proprietor who wanted to start up a new solo plan and make elective deferrals had to put the plan in place by the last day of the year. That was a problem because solo proprietors are often not aware of the business’s earnings for one year until the early part of the next year.

SECURE 2.0 corrects this by allowing sole proprietors to establish retroactive solo 401(k) plans with both employer contributions and elective deferrals. The deadline for adopting a new solo plan after its first year with both kinds of contributions is the due date of the individual’s tax return (without extensions) for the prior year.

Although SECURE 2.0 is not crystal clear, it appears that this new option is not available for setting up 2022 plans retroactively. It won’t be effective until 2024 (for 2023 plans).


Randy is a sole proprietor with a lawn-mowing business. In March 2023, Randy hears about solo 401(k) plans from a financial advisor and wants to set up a new plan for 2022. He can do so, but he will be limited to employer contributions (20% of 2022 adjusted net earnings from self-employment). If instead, in March 2024, Randy wanted to retroactively open a new solo 401(k) for 2023, he could fund the plan with both 2023 employer contributions and elective deferrals.


By Ian Berger, JD
IRA Analyst

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