Timing of 401(k) Contributions Made By Sole Proprietor or Corporate Owner

[Guest Edward McElroy]

I have seen this question answered several ways on this board. If a 100% shareholder in a corporation (with no other employees) sponsors a 401(k) plan with a 1/31/05 plan year end, can the individual who makes a CODA prior to 12/31/05 (plan year end of 401(k) plan) defer $14,000 on compensation earned by 12/31/05 and have compensation contributed to 401(k) by due date of corporation's 1/31/06 tax return (with extensions)? I'm guessing that this is the same riule for a sole proprietor that maintained a 401(k) plan. So the rules under 2510.3-102 do not apply in either case? Thanks. Ed

[Mike Preston]

I disagree. I think they apply. If it is a corporation, it is W2. If it is W2, it is KNOWN as of the point in time when it is paid.

[mbozek]

The DOL rule only applies to plans that are subject to ERISA. For 415 purposes the contributions must be made no later than 30 days after the tax return is due.

However reg 1.401(k)-1(a)(2)(iv) effective 1/12/06 provides that the date on which elective contributions become plan assets for the purpose of the PT rules under IRC 4975 and ERISA shall be determined under the DOL regs. This implies that elective contributions of solo 401k plans will be considered plan assets which will be deemed loaned to the employer under 4975 if the DOL rules are not followed. I dont know if an elective contribution made at the end of 05 would be subject to the revised 401k reg that takes effect on 1/1/06 or the reg only applies to elctive deferrals made on or after 1/1/06.