When should I set up a Solo 401(k)?

The legal distinction between establishing and funding: 'establishing' a Solo 401(k) means adopting a written plan document, typically the prototype document provided by your brokerage (Fidelity, Schwab, Vanguard, Etrade). You sign it, it creates the plan, and the plan legally exists. 'Funding' is the actual deposit of money into the account, which can happen later. Both steps need to happen, but on different timelines.

If you are a sole proprietor and it's December 15: open the plan today. Fidelity, Schwab, and Etrade offer free self-employed 401(k) plans with digital account opening that can complete in one business day. The paperwork is an online form; the plan document is generated automatically. The contribution itself can be deposited in January or even October if you file an extension.

If you are an S-corp owner: the employee deferral election (the commitment to defer a portion of each paycheck) must be made before the last paycheck of the year. If your last payroll runs December 31, the deferral election needs to be in place before then. Employer contributions can be made up to the filing deadline.

What you lose by missing the deadline: an entire year of contribution capacity. At $150K net profit netting a $53,500 Solo 401(k) contribution at 32% marginal rate, a missed year costs roughly $17,100 in federal tax savings. That money is gone. You cannot make a prior-year Solo 401(k) contribution after the deadline passes.

SEP IRA as the backup: if you miss the December 31 Solo 401(k) deadline, you can still open and contribute to a SEP IRA up to October 15 of the following year (with extension). The SEP contribution will be smaller at the same income level, but it is still a meaningful above-the-line deduction and far better than nothing.