Self Employed made deferrals /w no earnings

[RobN]

Participant made $15,000 in 401(k) Deferrals during 2006 and it turns out he had a loss for the year.

Is the correction simply refunding the $15,000 or should earnings on the $15,000 also be distributed?

[WDIK]

Was there income allocable to the participant's account?

[RobN]

Was there income allocable to the participant's account?

The $15,000 was deposited into an individual brokerage account that has been in existance with accumulated funds for years and had investment income for 2006.

[WDIK]

According to Treasury Reg. 1.415-b(b)(6), if the excess annual additions are "a result of the allocation of forfeitures, a reasonable error in estimating a participant's annual compensation, a reasonable error in determining the amount of elective deferrals (within the meaning of section 402(g)(3)) that may be made with respect to any individual under the limits of section 415, or under other limited facts and circumstances" then "the plan may provide for the distribution of elective deferrals (within the meaning of section 402(g)(3)) or the return of employee contributions (whether voluntary or mandatory), and for the distribution of gains attributable to those elective deferrals and employee contributions". (emphasis added)

Please note that the plan must contain a provision that permits such a correction and the violation must have ocurred due to one of the reasons described in the regulation.

[Jim Chad]

Your question would lead us to guess that this is a sole proprietor. Is this correct?

Was the deposit made in 2006 and is this a calendar year Plan?