If a 401k plan has a 12/31 PYE, while the fiscal year for the company ends 6/30, how would we go about making a PS contribution? For example, the ER wants to contribute $10,000 for the fiscal year end 6/30/07. Would that have to be allocated based on 12/31/07 eligibility and wages? And if that is true, then we would have to wait until after 12/31/07 to deposit (ind account plan). But then that means the employer would have to extend the company's tax return beyond 9/15.

Is all of this correct? Is there a better way to handle this?

Make the contribution before 6/30. If not designated when made for a different PY that overlaps with the FY for which made (such as the prior PY, the one ended 12/31/06), then the contribution is for the PY in which made, PYE 12/31/07.



The contribution will be allocated based on the eligibility and wages for the PY, either ending 12/31/06 or 12/31/07, for which the contribution is made. So unless the contribution is designated as for PYE 12/31/06, yes, the contribution would be allocated based on 12/31/07 eligibility and wages.



You wouldn't necessarily have to extent the company's tax return beyond 9/15.



You could make the contribution by 9/15, but instead of allocating it, place it into a 'suspense' account titled in the name of the plan trustees, and claim the contribution as a deduction on the company's tax return. Then after 12/31/07, when you will know all of the PYE 12/31/07 data, you can determine the allocations and 'sweep' the respective allocation amounts from the suspense account into the individual plan accounts FBO the participants.

So, the employer must (in writing) designate which plan year the contribution is for. They could say its for the 12/31/06 plan year and allocate immediately, and count it as an employer contribution for the 6/30/07 fiscal year for taxes.

The only part I did not understand is why it has to be made before 6/30/07?

Thanks

If the employer makes no designation of a different PY, then a contribution applies to the PY in which actually made. If the contribution is intended for a different PY than the one during which the contribution is made, it needs a designation.

The contribution could be made after 6/30, by the time that the company's tax return for FY 6/30/07 is timely filed (with or without extension) and yet be claimed as a deduction on that tax return.