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Timing of partner's elective deferral in SIMPLE IRA


MarZDoates
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Client is a partnership with two partners, no employees. It has always been our understanding that the partner's elective deferrals into their SIMPLE IRA can be made up to their tax filing deadline.

I have researched 29 CFR 2510.3-102. It says that deferrals must be submitted no later than the 30th calendar day following the month in which the participant contribution amounts would otherwise have been payable to the participant in cash.

However, since we have not yet determined what the partner's income is, what becomes the deadline for depositing the deferrals?

I have also read some prior posts, but am still having difficulty in determining when the deferrals must be made.

I was told that the "preamble to the DOL Plan Asset Regs" addresses this issue. I am having difficulty locating the preamble. Can someone please point me in the right direction. Thank you very much.

QPA, QKA

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From CCH - excerpt below. I think it requires some level of interpretation - but when it says "otherwise would have been distributed to the partner" it would seem reasonable to think that this allows for calculation of taxes - otherwise there is no way to determinae what would be distributed to the partner.

REG-PREAMBLE, PEN-RUL ¶24,176, EMPLOYERS GIVEN 15 DAYS AFTER MONTH OF RECEIPT TO PAY PARTICIPANT CONTRIBUTIONS TO PLAN., (August 7, 1996)

c. Partnerships

Two comments were received relating to when contributions by partners to section 401(k) plans become plan assets. The letters represent that, under 26 CFR 1.401(k)-1(a)(6)(ii), a

partner's compensation is deemed currently available on the last day of the taxable year, and an individual partner must make an election by the last day of the year. They ask when the

monies, which otherwise would be paid to a partner, but for the partner's election, become plan assets, inasmuch as partners do not receive wages. In the view of the Department, the

monies which are to go to a section 401(k) plan by virtue of a partner's election become plan assets at the earliest date they can reasonably be segregated from the partnership's general

assets after those monies would otherwise have been distributed to the partner, but no later than 15 business days after the month in which those monies would, but for the election,

have been distributed to the partner.

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For deduction purposes, the contribution has to be made by the due date. If the plan is subject to ERISA, then the timing rules certainly apply for DOL purposes.

HOWEVER, in the case of a SIMPLE-IRA, a 30-day rule-- is an "administrative requirment"--as specified in Code Section 408(p)(5)(A)(i). It states that the elective contributions are to be made within the 30 day period "following the month with respect to which the contributions are being made."

Earned income (whenever computed) is treated as earned on the last day of the year (generally December 31st). I am not entirely confortable with relying on the Preamble in the case of a partner in a SIMPLE IRA--January 31 may be the deadline (but not necessarily a DOL safe harbor if ERISA applies to the plan). If the administrative requirments are not satisfied, the plan is not a SIMPLE-IRA for the year. [iRC Sec. 408(p)((1)(A)] This is an issue the IRS needs to address; but is unlikely to do so.

Note: I would be even less confortable applying the DOL rules to a sole-proprietor; as they were based on the partnership regulations that are outside of the jusisdiction of the EP/EO division.

Hope this helps.

Nice find on the Preamble, Belgarath.

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