How to change year of contribution for 401k at Charles Schwab?

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Posts: 596
Joined: Fri Oct 03, 2014 1:18 am

How to change year of contribution for 401k at Charles Schwab?

Post by financial.freedom »

I have a solo-401k and did my taxes a few weeks ago, got the amount I can contribute from my CPA, then made the contribution and designated it as 2019 401k contribution.

Now today, my CPA sent me an email:

"Please take $5,240.17 of the 2019 contribution and have it count for 2020. If you call the broker up, they will send a form for you to sign and return to them. thanks"

I called my CPA and she said "the rules changed" but that it "wouldn't affect my return" that was already filed. This doesn't make sense to me, but I went ahead and called CS and waited on hold for 20 minutes. They transferred me to a retirement specialist, but the wait time was 30 more minutes. So I did the online chat option, and they said that the contributions I made cannot be split between two different years (2019 and 2020).

Has anyone from the BH community encountered this problem before?

I feel like if my accountant made the mistake, her company should do the footwork to correct it. Is that the best approach?

Thanks in advance!
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Joined: Thu Dec 27, 2018 3:06 pm

Re: How to change year of contribution for 401k at Charles Schwab?

Post by HomeStretch »

If you are the plan administrator (PA) for your Solo 401k, then you are responsible for all plan record-keeping including contributions.

Assuming you are the PA, you designate, track and report on Form 5500/EZ/SF (if applicable) how much of the contribution made in calendar year 2020 applies to plan year 2019 and to plan year 2020.

The mainstream providers like Fidelity don’t report the contribution year to the IRS. So it doesn’t matter (and no updated form is required to be submitted) if you sent in a form with the entire 401k contribution designated as tax year 2019 to the provider/custodian.

If you are not the PA, then you would need to communicate the contribution year change to the third-party PA for proper tracking and reporting.
Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: How to change year of contribution for 401k at Charles Schwab?

Post by Spirit Rider »

First, I have no idea what the CPA is talking about with; "the rules changed". There have been no rule changes since 2002 affecting one-participant 401k contributions. The contribution limits each year are adjusted for inflation. From 2018 to 2019, the employee deferral limit increased from $18.5K to $19K and the annual addition limit increased from $55K to $56K. It sounds more like the a case of CPA CYA.

Any pre-tax contributions for the 2019 tax year made from 1/1/20 to your tax filing deadline (7/15/20) including extensions (10/15/20) are allocated based on which year you claim the deduction for.The records of the custodian are not the final determination of what year the contributions are for. However, this does not explain the CPAs other statement that it; "wouldn't affect my return". You are only required to file Form 5500-EZ by 7/31 if the year end balance is > $250K.

Did the CPA have you make a larger contribution (during 2020) than allowed for the 2019 tax year, but already reduced the reported amount on your 2019 tax return? If so, there is nothing to do except reduce your future 2020 allowed contributions by this excess amount.

However, if the excess contributions were made during the 2019 calendar year, you have a much bigger problem.
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