By Alex E. Oliver, Wealth Manager, First National Corporation

The SECURE Act changed the deadline for establishing a profit sharing plan or cash balance plan in order for employer contributions to be made for the 2021 tax year. Previously, this would have been 12/31/21, but now is your tax filing deadline with extensions.

If you have not set up a retirement plan yet, it is now possible for you to profit share yourself up to $58,000 in deductions for the 2021 tax year. If you have traditionally maxed out your profit sharing contribution, you could now add on a cash balance plan for 2021 to defer another $50,000 – $200,000 and avoid income taxes.

Given the 4-6 week process of running projections and setting up a 401(k)/profit sharing plan/cash balance plan, a client looking to take advantage of this will almost certainly need to file a tax extension.

We would anticipate a strong uptick in the use of cash balance plans due to this deadline change, given that we can start with actual 2021 figures instead of working off projections. Note that we partner with First National Corporation to set these up and you will not charged additional testing fees for plans with less than 25 employees, so even if they are not currently managing their 401(k)/profit sharing plan, you can still open the cash balance plan at Fidelity/Schwab maintain your current 401(k) provider.

The deadline change also applies to the solo 401(k) employer portion. In the past, we have used the SEP-IRA for spring contributions, but typically recommended that you convert it to a solo 401(k) shortly thereafter so that you could make backdoor Roth IRA contributions. Thus, in some ways, the SEP-IRA is becoming obsolete given the added flexibility of the solo 401(k).

If this applies to you, please reach out to and your accountant for further consultation.