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SIMPLE contribution not really "receivable"?

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We all know you can't have a SIMPLE and 401(k) in the same plan year.   However it's possible to have a year-end receivable contribution for the SIMPLE that would be made after the PYE, which I believe is ok. 

But here's this situation:

Employees are paid bi-weekly.  The period covered is 12/16/2017 - 12/30/2017; check date 01/07/2018 (I'm aware that was a Sunday!)  Anyway - the payroll company report indicates "Week 1" and will report that as 2018 W-2 wages on a cash basis.  SIMPLE Withholdings were done.  Accountants just discovered this now.  (SIMPLE accounts have already transferred to the new 401(k) accounts for each person.) 

What's the fix here? 



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Well, what's the problem here?  Would be nice to succinctly have all the information without having to figure out what is going on.  For example, are we to assume that a new 401(k) plan was established for the calendar year beginning 1/1/18?  Let's do that based on your comment about SIMPLE accounts being transferred (which raises a bunch of questions by itself which we will not deal with here).

So, there is a 401(k) plan in effect 1/1/18.  You previously had a SIMPLE plan that was in effect prior to 1/1/18.  You terminated the SIMPLE so you could have a 401(k) effective 1/1/18.  Those are the assumptions we are going to work with.

A paycheck issued 1/7/18 had SIMPLE deductions taken from it.  You give us information that the check covers pay for the period 12/16 - 12/30/17.  The important thing is that it matters not one iota what period the check was for; it was a check paid in 2018 when there was no longer supposed to be a SIMPLE in effect.  The error is that no one told the payroll people to stop the SIMPLE deferrals from the employees as of 12/31/17; no check issued in 2018 should have had a SIMPLE deferral and the fact that it covered payroll "earned" in the prior year is just immaterial.  Of course, I do wonder what was done about 401(k) deferrals as of 1/1/18, but you do not provide that information and I will not make an assumption since it doesn't really affect the issue raised.

What is the fix?  Well, the SIMPLE is not a SIMPLE for 2018.  However, the contributions were made to an IRA.  And given that it was only one payroll period, I would suggest you just leave the money in the IRA and fix  (correct) the payroll system to treat it NOT as a SIMPLE but as a payroll deduction IRA contribution.  It is highly unlikely you exceeded the annual IRA limits with that one check.  The employees have a small contribution in 2018 to their IRA which they can deal with as they wish and when they file their 2018 1040, they will reflect that contribution as treat it as required by their 2018 return.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089

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