Can I set up a plan now, and make a 2007 contribution?

[Guest fender5150]

I'd like to be able to set up a plan now, and make a profit-sharing contribution for the prior year (a NEC). Can this be done? Since IRA's can be set up after year-end, I thought there may be such an option for 401ks as well.

I asked an administrator this question (who's been in the business for years), and I didn't like the answer. : )

I've done a small amount of research to find this:

<b>Income Tax Regulation section 1.401-1(a)(2) requires that a plan must be a definite written program that is communicated to employees.

Effective date of plan:

The plan may not be made effective earlier than the first day of the employer’s tax year in which the plan was adopted. In other words, an employer may adopt the plan document on the last day of its tax year, with an effective date retroactive to the first day of that tax year, but not any earlier.</b>

That seems pretty definitive, but I'm hoping there's some provision to allow NEC's for the prior year.

Thanks in advance for your reply(s).

[jevd]

A Qualified Plan must be set up by 12/31 of the effective year for a calendar year plan.

Consider a SEP which may be set up by your Tax filing deadline including extensions. You may make a 2007 contribution up to the limits of 25% or $45,000 for 2007. You didn't state if you are incorporated or self employed. Self employeds have a special calculation.

You also didn't state if you have employees.

Refer to IRS Publication 560 for additional information. Here

You also could adopt a Qualified plan for 2008 and transfer your Sep Contribution into the QP if the plan allows and will account for it.

Consult with a Pension Practitioner for additional information.

[Mike Preston]

No can do.

[Mike Preston]

Teach me to take a phone call before uploading. My response was intended for the OP, not for the response. The response is spot on.

[jevd]

Thanks Mike

[Guest fender5150]

Great feedback. Thank you very much!