HCE - Okay to have late deferrals?

[Guest Michael Anderson]

Small 401(k)/Safe Harbor Plan. The company had extentions on their taxes for 2004. They just submitted their 2004 SH contribution and the 2 HCE (both owners) figured their final 2004 income and sent in 2004 employee deferrals for themselves. Is this considered a late payment? Do they have to mark yes on the 5500 and pay in excise tax etc?? Any suggestions? Thanks!

[Guest trumpy]

Are they self-employed? If so, did they elect to defer in writing prior to the plan year end?

[Guest Michael Anderson]

They are a limited liability taxed as a partnership. They did not elect in writing prior to year end.

[Guest trumpy]

Not having an election in writing prior to year end is a problem - are you sure you can't find an election?

[Guest Michael Anderson]

So if they elected to contribute a certain amount before the end of the Plan year, but didn't pay it in until Sept 2005, it wouldn't be considered late??

[Guest trumpy]

I believe there is some gray area on this - but it is my understanding that the IRS allows self-employed individuals a reasonable amount of time to wrap up their taxes before making salary deferral deposits. If taxes were not completed until September I think you would have an argument.

This is all contingent, however, on the election having been made in writing prior to plan year end.