Contributions to individual retirement accounts can be made for the previous year up to the tax-filing deadline of the current year. But the tax deductions for 401(k) plan contributions and most other salary-deferral retirement plans usually apply only to the calendar year in which they are actually withheld from the taxpayer's paycheck.

Key Takeaways

  • Contributions to 401(k)s usually apply to the calendar year in which they are withheld from the participant’s paycheck.
  • Contributions to some types of individual retirement accounts are acceptable up to the October filing date of extended tax returns.
  • A self-employed person's ability to file past December 31 may depend on the type of business they engage in, as well as the type of contributions they make.

The following significant differences can affect your retirement savings.

Non-401(k) Plans

The combined individual contribution limit for Roth and Traditional IRAs in the 2020 and 2021 tax years is $6,000. Those aged 50 and older can make a "catch-up" contribution of an additional $1,000.

Although contributions to traditional IRAs are tax-deductible, the deduction may be reduced or eliminated if the account holder or their spouse is covered by a retirement plan at work. The money grows tax-free while it remains in the account and is taxed at withdrawal.

Money in a Roth IRA grows tax-free and can be withdrawn tax-free in retirement. Contributions are not tax-deductible. Income limits restrict the ability to make contributions or deduct them from taxable income.

Deadline rules vary for 401(k) plans.

401(k) Plans

The limit on employee tax-deductible elective deferrals for most 401(k) plans was $19,500 in 2020. For 2021, the limit has also been set at $19,500.

If permitted by the plan, participants who are 50 or older at the end of the calendar year can make additional catch-up contributions of up to $6,500 for the 2020 tax year. The limit stays the same for the 2021 tax year.

Contributions to a 401(k) are generally due by the end of the calendar year. For instance, assume that an employee makes an election to defer part of a bonus to be received for 2020. The bonus is based on 2020 compensation but is paid on January 31, 2021. The amount deferred from the bonus will apply to the employee's 2021 salary deferral contributions.

Plans may also vary. Contributions for a prior year may not be allowed because an employee is limited to making contributions through payroll deductions.

Employers may have a longer time period with which to make matching contributions for a given year of a plan. This means an employee technically can make 401(k) contributions as late as the deadline for their company to file its taxes, including any extensions.

This additional time becomes especially apparent in the case of self-employed savers, who might not contribute to their solo 401(k) plan for a given year until tax time the following year. The ability to do so can depend on the business type and whether the contribution is by employee deferral or through a profit-sharing component.

The Bottom Line

Generally, the 401(k) has a hard contribution deadline at the end of the year. But plan participants may check with their human resources department or consult experts to see if they are permitted to make contributions in the new year—before tax time.