Last day for solo 401k contribution?

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am
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Last day for solo 401k contribution?

Post by am » Tue Nov 29, 2016 4:22 pm

Wondering when we can make the last employee contribution for the year for an s corp? How about profit sharing? Did some searching and can't find a straight answer?

DSInvestor
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Re: Last day for solo 401k contribution?

Post by DSInvestor » Tue Nov 29, 2016 4:34 pm

I used to have an S-Corp and made my Solo 401k contributions by Dec 30 for the employee contributions. Note that employee contributions must be withheld from the paychecks.

The employer profit share can be made up until tax filing deadline for the business. I used to make the employer contribution at the same time as the employee contribution. However, I always got something extra added to my W-2 income for employee use of the car at tax prep time so that increases the employer profit share contribution. I'd top off the employer profit share by the tax filing deadline (MAR 15 for corp returns).

Here's something I found:
http://www.irafinancialgroup.com/solo-4 ... adline.php

am
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Re: Last day for solo 401k contribution?

Post by am » Tue Nov 29, 2016 4:41 pm

Our accountant told us the deadline for last payroll is Jan 31. I am not sure how we can make the employee contribution if the deadline is last day of Dec?

ERISA Stone
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Re: Last day for solo 401k contribution?

Post by ERISA Stone » Tue Nov 29, 2016 4:46 pm

For s-corp, the final 401k contribution can be taken from the last payroll of 2016. For example, I have monthly payroll on 12/31, so the 401k contribution could be deferred from that payroll. The funds might not actually deposit on 12/31. It might be the first week in January before the funds actually deposit to your account.

An employer contribution should be made no later than the s-corp tax return deadline, including extensions.

Spirit Rider
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Re: Last day for solo 401k contribution?

Post by Spirit Rider » Tue Nov 29, 2016 8:20 pm

am wrote:Our accountant told us the deadline for last payroll is Jan 31. I am not sure how we can make the employee contribution if the deadline is last day of Dec?

Typical accountant fast and loose with the rules. The only reason they use the January 31st date is that is the latest you can get the information ready for the the W-2 due on February 1st. This may fly with payroll only, but it will not fly with solo 401k contributions.

As pointed out by ERISA Stone, 2016 401k employee deferrals must be deducted from payroll with a "pay date" on or before 12/31/2016. You are supposed to deposit contributions as soon as administratively feasible. It is pretty hard to say with just a shareholder-employee that this takes more than a few days, although the DOL gives you a safe harbor if it is within one week. Maybe you can go past the DOL deadlines if there are no other employees, but IRS regulations require the deposit of the contributions by the 15th of the following month (January 15th).

So tell the accountant to get off their lazy derriere and run a payroll by 12/31 and ensure the contribution is deposited within one week. Remember a solo 401k is still a 401k subject to the vast majority of 401k regulations. You as the administrator of the plan are potentially liable for any failure to follow regulations.

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Hub
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Re: Last day for solo 401k contribution?

Post by Hub » Wed Nov 30, 2016 11:34 am

Spirit Rider wrote:... but IRS regulations require the deposit of the contributions by the 15th of the following month (January 15th).
I just opened my wife's sole proprietor solo 401k yesterday at TD Ameritrade. They told me the employee contribution was due by 1/15/17. I wasn't sure they were right, but I'm happy to see Spirit Rider is of that opinion as I trust him (her) and ERISA in these matters.

Spirit Rider
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Re: Last day for solo 401k contribution?

Post by Spirit Rider » Wed Nov 30, 2016 12:04 pm

Hub wrote:
Spirit Rider wrote:... but IRS regulations require the deposit of the contributions by the 15th of the following month (January 15th).
I just opened my wife's sole proprietor solo 401k yesterday at TD Ameritrade. They told me the employee contribution was due by 1/15/17. I wasn't sure they were right, but I'm happy to see Spirit Rider is of that opinion as I trust him (her) and ERISA in these matters.

They either misunderstood your business type or are incorrect. This is the date of deposit for S-Corp W-2 employee deferrals. As stated earlier they must be deducted from a payroll no later than 12/31/16.

A sole proprietor has no payraoll. There is no difference between the sole proprietorship and the owner. A sole proprietor has until your the filing deadline 4/18/17, with extensions 10/16/17 to make both the employee deferral and employer contribution. Here is the employee deferral cite:

26 U.S. Code § 404 - Deduction for contributions of an employer to an employees’ trust or annuity plan and compensation under a deferred-payment plan, (a) General rule, (6) Time when contributions deemed made

For purposes of paragraphs (1), (2), and (3), a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof).

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plannerman
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Re: Last day for solo 401k contribution?

Post by plannerman » Wed Nov 30, 2016 12:15 pm

I have read that a sole proprietor "must formally elect to make an employee deferral contribution by Dec. 31"
How does one go about "formally electing"?

plannerman

ERISA Stone
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Re: Last day for solo 401k contribution?

Post by ERISA Stone » Wed Nov 30, 2016 12:43 pm

An FYI - I have been involved in audits with both the IRS and the DOL, and both entities have indicated the 15th of the next month is not a timely deposited contribution. One should be good as long as the 7 business day rule is adhered to.

Spirit Rider
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Re: Last day for solo 401k contribution?

Post by Spirit Rider » Wed Nov 30, 2016 2:47 pm

plannerman wrote:I have read that a sole proprietor "must formally elect to make an employee deferral contribution by Dec. 31"
How does one go about "formally electing"?

It should be a signed and dated written election.

The is no standard IRS form, many providers have a sample form, but you can use one of you own design.

The reason you might want to use your own is that you can be more flexible than a simple percentage or dollar amount that a boilerplate form might use.

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plannerman
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Re: Last day for solo 401k contribution?

Post by plannerman » Wed Nov 30, 2016 3:32 pm

Spirit Rider wrote:
plannerman wrote:I have read that a sole proprietor "must formally elect to make an employee deferral contribution by Dec. 31"
How does one go about "formally electing"?

It should be a signed and dated written election.

The is no standard IRS form, many providers have a sample form, but you can use one of you own design.

The reason you might want to use your own is that you can be more flexible than a simple percentage or dollar amount that a boilerplate form might use.


Thanks Spirit Rider

plannerman

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Hub
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Re: Last day for solo 401k contribution?

Post by Hub » Fri Apr 07, 2017 1:46 pm

Spirit Rider wrote:
Hub wrote:
Spirit Rider wrote:... but IRS regulations require the deposit of the contributions by the 15th of the following month (January 15th).
I just opened my wife's sole proprietor solo 401k yesterday at TD Ameritrade. They told me the employee contribution was due by 1/15/17. I wasn't sure they were right, but I'm happy to see Spirit Rider is of that opinion as I trust him (her) and ERISA in these matters.
They either misunderstood your business type or are incorrect. This is the date of deposit for S-Corp W-2 employee deferrals. As stated earlier they must be deducted from a payroll no later than 12/31/16.

A sole proprietor has no payraoll. There is no difference between the sole proprietorship and the owner. A sole proprietor has until your the filing deadline 4/18/17, with extensions 10/16/17 to make both the employee deferral and employer contribution. Here is the employee deferral cite:

26 U.S. Code § 404 - Deduction for contributions of an employer to an employees’ trust or annuity plan and compensation under a deferred-payment plan, (a) General rule, (6) Time when contributions deemed made

For purposes of paragraphs (1), (2), and (3), a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof).
Great info. Thank you for your help!

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