Late Deposit of 401(k) Deferrals / Form 5330

[415 Limit]

We administer a one participant plan (Form 5500-EZ filer not subject to Title I of ERISA) where the owner did not deposit his 2010 401(k) deferrals timely. Is he required to file a Form 5330, pay the excise tax and deposit lost earnings?

[ETA Consulting LLC]

I wouldn't think so. The question would be when was his actual election to defer made? For deferral purposes, you cannot wait until your extended tax filing deadline to decide how much to contribute, this type of discretion pertains only to the employer contributions. To contribute earnings on those late deposits would seem to undermine the primary purposes of the rule; to protect the retirement assets of common-law employees being among them.

I will acknowledge that the rule of late deposits do apply to plans that are not subject to Title I of ERISA, but wouldn't go as far as saying it would apply to a one-person plan where the owner is the sole participant.

Good Luck!

[415 Limit]

He made the election prior to 12/31/10 and his deferrals were withheld from his W-2 wages; however he forgot to make the deposit to the trust until several months into this year.

I'm inclinded to do the IRS correction because I can't find anything that says not to, and also, just to take the conservative approach; however I wanted to see what others are doing (if anything).

Thanks for your response.

[K2retire]

I've always heard that IRS auditors don't want employees who are owners to be treated any differently than other employees. On that basis, it seems like you should pay up and file it.