deadline to set up 401(k) Plan

[Earl]

potential client referred to me was told (in writing by a major HR firm) that it is too late by regulation (not laziness) to start a 401(k) Plan for 2007. "plan must be in effect for one month. 12/1 was the deadline."

this is not a Safe Harbor plan - there are no employees.

I have searched about and can't find any reference to any deadline other than last day of year.

(I told him to tell HR company to set up the plan with a 2/28/08 year and then have a short year 12/31/08. seems to work around OK to me. can't be that easy if that is a real reg.)

thanks

[Mike Preston]

He misunderstood. There is no such rule.

[Earl]

Thank you

[Kimberly S]

Could it be that December 1 was that firm's deadline for the latest they would accept the work?

[Earl]

That's my theory (and what I meant by 'laziness'), but they said:

IRS rules state that a 401(k) must be in place for at least one month during the year it was created. This means this must have been set up prior to 12/1/07 for the 2007 year.

The managers of Xxxxxx’s Pension department, say they will not set up a 401(k) for the 2007 year given these IRS mandated restrictions.

[pmacduff]

FWIW:

If they say that "IRS rules state that..." and "IRS mandated restrictions" do not allow them to do this; then they should be able to provide you with a cite or regulation #.

Even if they won't set this one plan up...you might lead them to realize the error of their ways for the future!!!

[Lori Friedman]

It's not unusual for (inept) practitioners to defend a falsehood or fiction with a vague mention of an "IRS regulation" or "IRS rule". I always call people on that ruse -- insist that they enlighten me with the specific regulation section, ruling number, or other citation. Needless to say, the information never gets provided.

[Guest mjb]

potential client referred to me was told (in writing by a major HR firm) that it is too late by regulation (not laziness) to start a 401(k) Plan for 2007. "plan must be in effect for one month. 12/1 was the deadline."

this is not a Safe Harbor plan - there are no employees.

I have searched about and can't find any reference to any deadline other than last day of year.

(I told him to tell HR company to set up the plan with a 2/28/08 year and then have a short year 12/31/08. seems to work around OK to me. can't be that easy if that is a real reg.)

thanks

I think the response was geared to the Q of how much in salary reduction could be made by year end because plan must be adopted before salary reduction contributions can be made.

Silly Q: what is the amount that the client wants to contribute for the tax yr.

1. If there are no employeees 401k contributions can be made by self employed person after yr end.

2. Employer could establish a PS plan by end of his tax yr (e.g., 12/31) and contribute up to 45k pre tax for current tax yr by date for filing 2007 tax return with exentsions .

3. Or employer can contribute up to 45k or 20% of net earnings from SE to a SEP which is established by the date for filing his 2007 tax return.

4. Client needs to coordinate the end of the plan yr with the end of the employer's tax yr to determine if deduction can be made.