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When is contribution deemed made - date on check or date sent to fina inst?


Guest amfam2

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Customer establishes brand new SIMPLE IRA w/an effective date of 12/31/03 and mails check w/a check date of 12/31 but instructs us that the contribution is for 1st payroll in 2004.

When are SIMPLE IRA contributions "deemed" to have been made? The date the check was cut or the date in which the financial institution received the funds?

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A SIMPLE must be established between January 1 and October 1…an exceptions applies for a business that came into existence after October 1. In this case, the SIMPLE must be established as soon as administratively feasible. I mention this because you indicated the effective date of the SIMPLE as 12/31/03.

Assets representing SIMPLE IRA salary deferral contributions must be contributed to the individual SIMPLE IRAs by the 30th of the month that follows the month to which the deferral applies. It appears the date on the check is immaterial- providing it is contributed by the deadline and that it is not postdated, which may prevent it from being honored by the bank…

The contribution should be reported (on form 5498) for the year it is received by the financial institution.

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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What is confusing us is that the customer wrote out the check on 12/31 and informed us that it is a contribution for the 2004 tax year.

Internally some of us are taking the position that customers cannot give us a contribution with a designation for a future tax year. For example, if this was a Traditional IRA, a customer could not give us a check on 12/31 w/instructions to deposit it as a 2004 contribution. They would have to wait a day (1/1/04) and give us the check then.

Since this is a SIMPLE IRA, and the facts & circumstances are somewhat different - customer processes payroll on 12/31 (Wednesday) w/a paydate of 1/2/04 (Friday), but the check they issue to us is dated 12/31/03.

I think we may be looking too closely at the tax code rules; I'm inclined to accept the check and process using the date of receipt of check (which is actually procedurally different from what we would be doing if this were a Traditional IRA. For Trad IRAs we would honor the postmark date).

To tell you the truth, I am stumped on giving reasons why we COULDN't accept the future contributions in accordance with a customer's request. If it turns out that the customer is ineligible or cannot make these contributions, the tax penalties & burden to correct falls on them....

I am interested in your thoughts?

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If the envelope were postmarked in 2004 there would be no problem. Here, knowing that the contributions are being made for 2004 when the amounts would have otherwise been paid in cash, I see no problem with accepting the check dated 12/31. By "depositing" before 2003, the employer may have had a deduction issue to resolve. As a 2004 deposit (as it will be treated having been received in 2004), all will be well (as the contribution could relate to the current or prior year).

IMO, the contribution would not have to be forwarded any sooner than the date the checks would have been distributed to employees (even if the check was prepared sooner).

See, too, Appleby's response.

Good due-diligence. Sorry for the late reply! Hope this helps next year.

Whether a check can be held as agent, or under state, NASD, or securities law rules is another matter.

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