Form 5330

[Guest MEGary]

When a client contributes 401(k) contributions late (past the 15th business day following the month in which the contributions were due), what is the penalty calculated on?

The total amounts of the 401(k) contributions plus any earnings?

or

Only the amount of the earnings attributable to the late deposits?

Whichever reason, can you tell me why and where I can see it in writing.

Thanks!

[KJohnson]

I think that the consensus is you only look to earnings. The employer essentially has use of plan assets (a prohibited "loan") and then you simply follow the explicit instructions in the 5330 on how you deal with a loan that is a prohibited transaciton.

[MWeddell]

I came to the same conclusion as KJohnson last year when researching this for a client: it's the amount of the hypothetical interest that is subject to the excise tax.