401(k) deferral deadline for self employed

[Guest dyoder]

An LLC that is taxed as a sole proprietor established a 401(k) plan in 2002. What is the deadline for the sole proprietor to make 401(k) deferrals since it is unknown until after the year end what his profit will be? The due date for filing his personal return plus extensions?

[WDIK]

Here are some old threads:

http://benefitslink.com/boards/index.php?showtopic=17770

http://benefitslink.com/boards/index.php?showtopic=12305

[Guest dyoder]

Thanks for prior threads. Does anyone have any cites regarding this issue?

[K-t-F]

Soooo... A SE individual has until s/he files their schedule C to make the deferral and employer contribution. Deferrals do not have to be made prior to December 31.

[Archimage]

Here are two cites that I am aware of:

Part III

Department of Labor

Pension and Welfare Benefits Administration

29 CFR Part 2510

Regulation Relating to Definition of "Plan Assets"--Participant Contributions; Final Rule

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

29 CFR Part 2510

RIN 1210-AA53

The preamble is reproduced below

c. Partnerships

Two comments were received relating to when contributions by partners to section 401(k) plans become plan assets. The letters represent that, under 26 CFR 1.401(k)-1(a)(6)(ii), a partner's compensation is deemed currently available on the last day of the taxable year, and an individual partner must make an election by the last day of the year. They ask when the monies, which otherwise would be paid to a partner, but for the partner's election, become plan assets, inasmuch as partners do not receive wages. In the view of the Department, the monies which are to go to a section 401(k) plan by virtue of a partner's election become plan assets at the earliest date they can reasonably be segregated from the partnership's general assets after those monies would otherwise have been distributed to the partner, but no later than 15 business days after the month in which those monies would, but for the election, have been distributed to the partner.

From the Pension Actuaries and Consultants Conference in Washington, D.C., on October 9, 1997:

ASPA: If a sole proprietor or partner is deemed to earn income only on 12/31, what is the implication of elective deferrals made by the partner during the year prior to 12/31? Is a sole proprietor or partner deemed to earn all their income in one day for all purposes?

IRS: Their income is actually earned throughout the year, regardless of the fact that it is DEEMED to be earned at year end. Thus, contributions can be made during the year, but this is done at the peril that the amount deferred as a percentage of pay is unknown until the year end and could result in problems.

[mbozek]

There is a PLR which allowed salary deferrals by partners to be made by the pship from the partners draws up to the date of the filing of the pship tax return with extensions. Most pships do not make salary reduction contributions for partners before the date for filing the tax return because of the complexities in determining each partner's draw. The PLR is cited in a prior thread.

[Belgarath]

Here's another related thread.

http://benefitslink.com/boards/index.php?s...=0entry100125