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Contributions to Ineligible Employees


Guest ERead
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Guest ERead

You have several issues to look at here. First off - the document should tell you how to handle ineligible employee contributions. Usually, they are forfeit and used to reduce future contributions. However in this case, being that the year end has already happened, I'm not sure how you'd want to treat them. For one thing, not only would the employer have to amend his returns, each of those four employees would have to amend their personal returns to reflect the earnings. The other thing you would want to consider is how taking them out of the equation will affect the year end testing.... sound's like your in a predicament here without an easy solution. Any Attorney's out there have some suggestions?

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Guest Jim Murphy

A client has seven employees and made contributions for all of them in 1997 during the 1997 calendar year. He has a calendar year plan. He later determined that four of the employees were not eligible until 1998.

How should he remedy this situation? Can he move the money to the forfeiture account, amend his 1997 tax return and use the money as part of his 1998 contribution?

Any other commonly accepted solutions? Thanks for any information.

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