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Late Deferral Deposits SIMPLE 401(k)


Guest KateSmithVA
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Guest KateSmithVA

Husband and wife owners of S-Corp failed to deposit their own deferrals from their final paycheck in 2007. The funds were withheld from their paychecks and reported on their W-2s, they simply neglected to send them to the investment. Since it is obviously well past the deposit deadline, what is the correction for this?

Thank you.

Kate Smith

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Husband and wife owners of S-Corp failed to deposit their own deferrals from their final paycheck in 2007. The funds were withheld from their paychecks and reported on their W-2s, they simply neglected to send them to the investment. Since it is obviously well past the deposit deadline, what is the correction for this?

Thank you.

Kate Smith

Two options, both are debatable.

1) Issue a corrected W-2 Form and correct issue outside of the SIMPLE IRA; making it appear as if the deferrals were never withheld.

2) Make the deposits as soon as possible and explore correcting under the DOL procedure for late deposits. The 30 day rule for deposit is an IRS rule (which was violated) and the ASAP rule is a DOL rule (that was violated as well).

I would choose an option and move on.

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Guest KateSmithVA

Thank you for your reply. When I look at EPCRS, it states that a correction for a SIMPLE IRA is expected to be similar to a correction for a qualified plan. Couldn't they make the contribution plus lost earnings from January 31, 2008?

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Yes, but use the date 'as soon as administratively feasible' instead of Janaury 30th.

I would venture to argue that since they are the owner's of the company, no lost earnings would be allocable. However, a literal interpretation of the rules would not support this, but an understanding of who the DOL is trying to protect would. The DOL typically does not view owner's of the company as employees. However, the entitity is incorporated which may change that view.

Different companies may fall on different sides of the argument. However, an attempt (in good-faith) to provide full correct of the error will often suffice (especially when considering the dollar difference between the two approaches is miniscule).

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