Set up a SEP-IRA or Solo 401k before the extension deadline

Extension clients are some of the best retirement-planning prospects in your book. They usually have enough complexity to delay filing, enough income for the decision to matter, and enough urgency to act once they understand the tax impact. That makes the extension window an ideal time to compare a SEP-IRA and a Solo 401k.

The mistake is treating this like a generic retirement lecture. Clients do not need a history of plan design. They need a recommendation built around their facts: what type of income do they have, do they have employees, how much flexibility do they want, how much administrative burden will they tolerate, and how much contribution room are they actually trying to create.

IRS Publication 560 is your main reference for small-business retirement plans. IRS Publication 590-A helps anchor contribution rules and the individual retirement context. Those sources keep the conversation grounded when the client starts comparing internet advice that ignores entity type and timing.

Start with the client profile, not the product

A good recommendation begins with the client, not your preferred plan. Ask five questions first.

• Does the client have any common-law employees?
• What is the entity type?
• How variable is income?
• How much contribution room are they seeking?
• How much administration are they willing to handle?

Those questions quickly narrow the field. A Solo 401k usually fits best when the client has self-employment income or owner-only business income, wants higher elective-deferral flexibility, and can handle more setup discipline. An SEP-IRA often works when simplicity matters, income is variable, and the client wants employer-style contributions without a more detailed plan structure.

The point is not that one option always wins. The same plan does not fit every extension client.

The critical timing distinction extension clients must understand

This is the detail that decides whether your recommendation is actionable or just theoretical.

A Solo 401k must be adopted before December 31 of the plan year. If a client extended their 2025 return and is filing in September 2026, a Solo 401k adopted now cannot capture 2025 contributions, as the adoption deadline has already passed. The plan must have been established by December 31, 2025, for contributions to be made in 2025.

A SEP-IRA operates differently. It can be adopted up to the tax-filing deadline, including any extensions. That means an extension client filing in September 2026 can still open a new SEP-IRA and fund it for 2025. This is the critical distinction for every extension-season retirement conversation.

The practical outcome: most extension clients who have not already adopted a Solo 401k are SEP-IRA candidates for the prior year. The Solo 401k conversation shifts to what they should do before December 31 of the current year so they are not in the same position again.

Explain this distinction clearly in the first meeting. Clients who misread a headline suggesting they can still open a Solo 401k before the filing deadline need the correction before they act.

A worked example makes the choice obvious

Consider two clients who both extended their 2025 returns.

Client A is a solo consultant with $200,000 in net self-employment income and no employees. They want maximum deductible contributions and are comfortable managing a moderately complex structure. Their Solo 401k was adopted in October 2025, so it was in place before December 31. For 2026, they can contribute up to $23,500 as an employee deferral (the 2026 limit), plus an employer contribution of up to 25% of net self-employment income, after deducting half of the self-employment tax. The total across both cannot exceed $70,000 for 2026. That combination makes the Solo 401k the right choice for this client because the plan structure supports both deferral buckets and income, which justifies using both.

Client B is an agency owner with two full-time employees, variable income, and no appetite for plan administration. They never adopted a Solo 401k, and they cannot use one anyway because common-law employees disqualify the owner-only structure. For 2025, a SEP-IRA adopted before the extended filing deadline is the only real option. The SEP-IRA contribution rate applies uniformly to all eligible employees, which is worth discussing, but the simplicity is genuine, and the timing of adoption works.

The lesson: Client A maximizes with a Solo 401k already in place. Client B funds a SEP-IRA before the extended deadline because it is the only structure that still works.

Compare contribution flexibility and operational burden clearly

Clients care about two things: how much I can contribute and how much hassle this will create.

A Solo 401k often gives stronger flexibility when the client wants employee deferrals plus employer contributions and has enough income to use both effectively. The 2026 employee deferral limit is $23,500 ($31,000 for clients 50 or older under catch-up rules). The employer-contribution side can significantly increase the total for high-income owner-only businesses.

A SEP-IRA uses a single contribution rate applied to compensation, with contributions made only by the employee. There is no employee deferral component, which means that for clients with lower net self-employment income relative to desired contribution amounts, the SEP-IRA may produce a lower deduction than a properly used Solo 401k.

Your job is to show the tradeoff honestly. More contribution room or design flexibility may justify the added administration. In other cases, the simpler plan is the better answer because the client is unlikely to maintain a more complex structure correctly.

Document requirements and custodian setup timeline

Once the recommendation is made, implementation requires specific steps. Extension clients often underestimate the lead time.

For a SEP-IRA adopted under the extended deadline, the client needs: their net self-employment income figure or compensation calculation from the business, Social Security number or EIN, and a custodian that will accept a prior-year SEP-IRA contribution before the filing date. Most major custodians handle this, but the client must open and fund the account before the return is filed.

For a Solo 401k adopted for the current year (not the prior year), the client needs the plan adoption agreement, an EIN for the plan, and a custodian that offers self-directed or brokerage-style Solo 401k accounts. Adoption paperwork should be completed well before December 31 to avoid year-end scrambles. Some custodians need 2–4 weeks to process the setup.

Your firm's role in this step is to verify the entity structure, confirm employee status, review the income figures, and coordinate the implementation sequence so the client does not fund the wrong plan type or miss the applicable deadline.

Build the recommendation into an extension-season workflow

If you want these opportunities to convert, the decision needs a workflow in place.

• Step one: identify extension clients with enough income for retirement planning to matter. A threshold of $75,000 or more in net self-employment income is a reasonable filter for most markets.
• Step two: gather entity type, payroll status, employee count, and income estimates.
• Step three: Determine which plan type is viable given the timing and ownership structure.
• Step four: recommend one plan, map the implementation steps, and confirm the custodian timeline.
• Step five: fold the retirement move into the broader tax plan, including estimated payments. Once the retirement contribution is decided, estimated payments often need to change. IRS Publication 505 governs that side of the conversation. The advisory win is larger when the retirement recommendation and payment strategy are coordinated.

Extension clients are buying judgment, not just contribution math

A client could read contribution limits online. That is not why they hire you.

They hire you because the decision sits inside a bigger picture. Entity type, income pattern, employee count, future hiring plans, administration tolerance, and filing timing all affect the recommendation. You are connecting those dots.

That is why this is a strong advisory offer. The client sees a real choice, a real deadline, and a real need for judgment. When you frame it that way, the extension season becomes one of the best moments to move from compliance into planning.

What documentation does the client need to bring

The firm needs to verify entity type, net self-employment income, employee headcount, and whether a Solo 401k was ever previously established. For a Solo 401k, the client needs their EIN, a signed adoption agreement, and bank or custodian setup confirmed. For a SEP-IRA, the setup is lighter, but the firm should still verify that there are no common-law employees who would need to be covered. The documentation step is not optional; plan adoption without complete records creates compliance exposure that undoes the advisory value.

How to price the retirement plan advisory conversation

This is not a free service bundled into the extension filing fee. Firms that treat it as such train clients to expect planning for nothing. A standalone retirement plan advisory engagement typically runs $500 to $1,500, depending on complexity. For owner-only businesses, the workload is lighter, and the fee can be on the lower end. For clients with employees or multi-year plan design questions, the fee is higher. The advisory value is clear: a properly funded Solo 401k or SEP-IRA can reduce taxable income by $20,000 to $70,000, depending on income and plan type. That math makes the advisory fee easy to justify.

How the retirement plan recommendation fits the broader tax plan

Retirement plan funding does not sit in isolation from the rest of the tax strategy. For extension clients, the retirement contribution decision connects directly to estimated tax payments, owner compensation, and sometimes entity elections. When you increase a client's retirement contribution in October, their Q4 estimated payment may need to change. If the client is an S Corporation owner, the salary level affects how much of the contribution is employer-funded versus employee-funded, which in turn affects the deductibility calculation.

Build the retirement plan recommendation as part of a coordinated year-end plan, not a standalone checklist item. The client pays for integration. They can find contribution limits on the IRS website. What they cannot find on their own is how the retirement decision interacts with everything else in their tax situation, and what order the implementation steps should follow.

That coordination is also what makes the follow-up advisory relationship easier to sell. Once the client sees how the retirement decision connects to their compensation structure and estimated payment schedule, the case for year-round advisory support becomes obvious. One well-coordinated extension season is often enough to convert a compliance client into a planning client.

How to measure whether the extension advisory conversation worked

After the extension deadline passes, track three numbers for every extension client who went through a retirement plan advisory conversation. First, did the client implement the recommended plan? Second, what was the actual contribution made, and how does it compare to the projected tax savings? Third, did the client engage in any follow-on advisory work in the next 12 months?

Those three data points tell you whether the extension advisory conversation is producing real outcomes or just calendar activity. Firms that track this consistently find one pattern across every market: the clients who got a specific implementation plan, not just a recommendation, implement at significantly higher rates than clients who left with a general suggestion to look into it.

The implication is straightforward. End every extension retirement plan conversation with a concrete next step the client can execute within two weeks. That means a specific custodian, a specific contribution amount, and a date by which the adoption paperwork should be complete. Write it down and follow up once. That single follow-up step is the difference between a conversation and an outcome.

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Frequently asked questions

Q: Which clients are the best fit for this comparison?

A: Extension clients with meaningful self-employment or owner-level business income, no common-law employees if considering a Solo 401k, and enough tax exposure for the deduction to matter. A reasonable income filter is $75,000 or more in net self-employment income, though the right threshold depends on the client's marginal rate and contribution goals.

Q: Is a Solo 401k always better than a SEP-IRA?

A: No. A Solo 401k often offers more design flexibility, particularly for owner-only businesses that want both employee deferrals and employer contributions. But it must be adopted by December 31 of the plan year. An extension client who missed that deadline cannot use a Solo 401k for the prior year; the SEP-IRA is typically the only viable option because it can be adopted up to the extended filing deadline.

Q: What is the biggest mistake firms make here?

A: Recommending a plan based on contribution potential alone without checking the adoption deadline, employee status, and whether the plan structure actually fits the client's facts. A Solo 401k recommended to a client who already missed the December 31 adoption deadline, or who has common-law employees, is the wrong recommendation regardless of the contribution math.

Q: Why are extension clients good advisory prospects?

A: They already have urgency, complexity, and enough open planning time for the recommendation to matter. They are also more likely to have income levels at which the retirement deduction has a meaningful tax impact. That combination makes the advisory conversation easier to justify and easier to close.

Q: What should happen after the recommendation is made?

A: The client should get a clear implementation path, a required records list, and coordination with estimated-tax planning so the retirement move fits the broader tax strategy. Confirm custodian setup timelines early. A SEP-IRA adopted days before the filing deadline is only useful if the contribution can actually be processed in time.

Q: What happens if a client funds the wrong plan type?

A: A contribution to a Solo 401k for a year where the plan was not adopted by December 31 is an excess contribution and must be corrected. Excess contributions carry penalties and require plan correction procedures. This is why verifying the adoption date before the client funds anything is non-negotiable. If there is any doubt about the adoption date, confirm it with the custodian before proceeding.

Q: Can an S Corporation owner contribute to both a Solo 401k and a SEP-IRA?

A: Generally, no, an S Corporation owner contributes to a plan adopted by the corporation, and the plan type selected (Solo 401k or SEP-IRA) covers that compensation source. The details depend on the entity structure and how the plan is established. Verify with current IRS guidance and the specific plan documents before advising a client on multi-plan contributions. This is an area where plan documents and IRS rules need careful alignment.