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cash to acccrued basis for 1st 5500's


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Is it a big deal to switch between cash and accrued basis?

New 1-person plan deposited $500 as a starter contribution after the end of the plan year.

As part of a controlled group, she would normally file a 5500.

We'd like to wait until the current plan year contribution is filed before starting to file, and then file as accrued, so the 2nd plan year contribution would show the contribution for both the first and second plan years.

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I see this in the instructions (2021 SF):

Part III – Financial Information
Note. The cash, modified cash, or accrual basis may be
used for recognition of transactions in Part III, as long as
you use one method consistently.

So......do you even GET to change if you start off with a cash basis?

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So question is "one method consistently".  For first year of the plan, cash basis.  Then switch to accrual basis.  Is one year enough to say "consistent" since there was only one plan year involved before the switch?  Interesting...

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Interesting.

At a prior employer, for one reason or another about 25% of plans were reported on a cash basis. There was not enough institutional knowledge to know why.  One year we converted the cash basis 5500's to accrued so that we could be consistent across all plans within the practice.

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I have never seen the Labor department question a change from cash-receipts-and-disbursements accounting to accrual accounting (if the Form 5500 report shows an adjustment).

Many small plans, especially those with no TPA, begin reporting on cash accounting.

Among several reasons, a plan’s administrator might adopt, without editing, the information a recordkeeper furnished. A recordkeeper might lack enough information to form an accrual entry. And even if that information is available to a recordkeeper, many prefer to avoid anything that could suggest even a slight discretion.

When a small plan becomes one for which the plan’s administrator must engage an independent qualified public accountant, an IQPA usually persuades the administrator to change to accrual accounting.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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I don't believe it is a big deal to change. 

I'm not sure I follow how you don't have to file in year 1 but do in year 2 in this scenario, unless the $500 happens to put you over the $250K threshold.

Ed Snyder

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On 9/24/2022 at 7:32 AM, Bird said:

I don't believe it is a big deal to change. 

I'm not sure I follow how you don't have to file in year 1 but do in year 2 in this scenario, unless the $500 happens to put you over the $250K threshold.

Bird - the third line of my original post was intended to answer that question:

"As part of a controlled group, she would normally file a 5500. "

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