401k elective deferral

[Gary]

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A one participant corporation has a 401k plan.

Their fiscal and plan year end are 1/31/07.

The owner/participant took compensation of $50,000 all taken in January 2007.

The owner now wants to make a 401k deferral for the 1/31/07 plan year end that would thus be a reduction to his income for the 2007 individual income tax return for this individual.

My understanding is that the elective deferral should have been made by Feb 15, 2007 to be applied to the 1/31/07 plan year.

A pension attorney says that in this case the owner/participant can wait until the due date of his corporate return (with extensions) of 10/15/07 to make the 401k deferral to the plan since it is for the owner. As opposed to a common law employee.

Does anyone know the correct answer and know where the authority on this matter is (i.e. code, reg, etc.)?

I believe for an unincorporated self employed person (using Schedule C of 1040 for business) he would have up until the time of his tax return is due; this works nicely because we are dealing with the same one return, that being the 1040 so that makes some logical sense. But I don't know that such a liberty is allowed for a incorporated business as discussed above.

Thanks.

[Jim Chad]

An owner of a corporation should be treated like any other employee. It is too late to get it out of a January paycheck. However, he can put $12,500 in as a discretionary nonelective contribution. (provided he had the Plan set up before 1-31-07.)

If there is not a 401(k) Plan already set up, he might be able to put the same amount into a SEP. I'm not sure when the deadline is to set one up.

[Tom Poje]

the reg cite dealing with sole proprietors and partners is

[1.401(k)-1(a)(6), 1.401(k)-2(a)(4)(ii)]

there is a file attached of just the 401k regs in a topic called

"ADP refunds...." - you could scroll through section, it is dated May 3.

assuming the print out is the same as the copy I have:

page 12 of the preamble talks about deferring before even knowing how much earned income is available.

p63 and p 98 are the reg cites.

the most important point is that the ELECTION to defer is made by plan year end.

The actual $ can be deposited after that date- see comment on page 98

(A)(2) - the elective contribution is actually paid to the trust no later than the 12 month period follwoing the year to which the contribution relates.

(this comment refers to what deferrals are used on the ADP test, but it shows the realization that deferrals might not come into the trust immediately)

[Archimage]

Tom, the original poster said that this a corporation so that won't apply in this situation. Since it is a 1-31 year end, this must be a C corp. which makes the owner's wages W-2 income.

[Bird]

I'd be curious to know "where is the money?"

He took a $50,000 paycheck in January and "now wants to make a 401k deferral..."

Does he even know how much?

I'd bet that this case boils down to the owner not understanding that deferrals must be withheld from his paycheck (as noted by Jim Chad), and little or nothing to do with a deposit deadline. That is, in all likelihood, a red herring.

[Gary]

Yes it is a C corp where the owner took 50k in w-2 and wants to defer 20.5k (over age 50) in connection with that w-2.

And since he did not withhold it at the time the w-2 was paid the issue is:

Can he make a subsequent deferral up to the due date of tax return? One pension attorney says "yes', but it doesn't really seem right to me.

Thanks.

[austin3515]

On what basis does he refer to himself as a pension attorney?

Of course, are you certain he is not truly referring to employer contributions? As someone already mentioned he could contribute $12,500 through the date indicated by the attorney. And from the sole owner of a corp's perspective, that's a mere $2,500 less than the full 401(k) limit. The fact that it's profit sharing vs. 401(k) means nothing. i.e., perhaps it is you who are misunderstanding him?