plan year not equal to fiscal year

[Santo Gold]

If a 401k plan has a 12/31 PYE, while the fiscal year for the company ends 6/30, how would we go about making a PS contribution? For example, the ER wants to contribute $10,000 for the fiscal year end 6/30/07. Would that have to be allocated based on 12/31/07 eligibility and wages? And if that is true, then we would have to wait until after 12/31/07 to deposit (ind account plan). But then that means the employer would have to extend the company's tax return beyond 9/15.

Is all of this correct? Is there a better way to handle this?

[J Simmons]

If a 401k plan has a 12/31 PYE, while the fiscal year for the company ends 6/30, how would we go about making a PS contribution?

Make the contribution before 6/30. If not designated when made for a different PY that overlaps with the FY for which made (such as the prior PY, the one ended 12/31/06), then the contribution is for the PY in which made, PYE 12/31/07.

For example, the ER wants to contribute $10,000 for the fiscal year end 6/30/07. Would that have to be allocated based on 12/31/07 eligibility and wages?

The contribution will be allocated based on the eligibility and wages for the PY, either ending 12/31/06 or 12/31/07, for which the contribution is made. So unless the contribution is designated as for PYE 12/31/06, yes, the contribution would be allocated based on 12/31/07 eligibility and wages.

And if that is true, then we would have to wait until after 12/31/07 to deposit (ind account plan). But then that means the employer would have to extend the company's tax return beyond 9/15.

Is all of this correct?

You wouldn't necessarily have to extent the company's tax return beyond 9/15.

Is there a better way to handle this?

You could make the contribution by 9/15, but instead of allocating it, place it into a 'suspense' account titled in the name of the plan trustees, and claim the contribution as a deduction on the company's tax return. Then after 12/31/07, when you will know all of the PYE 12/31/07 data, you can determine the allocations and 'sweep' the respective allocation amounts from the suspense account into the individual plan accounts FBO the participants.

[Santo Gold]

So, the employer must (in writing) designate which plan year the contribution is for. They could say its for the 12/31/06 plan year and allocate immediately, and count it as an employer contribution for the 6/30/07 fiscal year for taxes.

The only part I did not understand is why it has to be made before 6/30/07?

Thanks

[J Simmons]

If the employer makes no designation of a different PY, then a contribution applies to the PY in which actually made. If the contribution is intended for a different PY than the one during which the contribution is made, it needs a designation.

The contribution could be made after 6/30, by the time that the company's tax return for FY 6/30/07 is timely filed (with or without extension) and yet be claimed as a deduction on that tax return.