tax deduction on annual safe harbor match?

[Lori H]

plan year ends 12/31/07 on a safe harbor 401(k). The plan doc states the plan will match on an annual basis rather than payroll by payroll. The company has until 12/31/08 to fund, but just to confirm, the company gets the deduction for the 2007 plan year even if they wait to fund the plan after they file their corp return, correct?

[JanetM]

No, to be deductible on 2007 return they must be funded by 3/15/08 or if you file extension you can go as late at 9/15/08. Key is you can't file 1120 until you make the contribution.

[Lori H]

so if they waited til end of year to fund, lets say november, it would be deductible on 08 return?

[Mike Preston]

Two issues:

1) Yes, it is deductible in '08. A better way to word it, though, is that it counts against the '08 deduction limitations. It is not automatically deductible. In a year where compensations dramatically reduced, you might end up with either no new monies being deductible. In fact, some of the prior year contributions might not be deductible. Hello, excise tax.

2) If not contributed by 30 days after the due date of the tax return, the contributions count as an annual addition for the year during which they are deposited. Somebody get a match that has no compensation in the new year? Hello, disqualification.

Is it worth the wait?