When are Sole Prop's 401(k) Deferrals due?

[CJS07]

Have a Sole Prop. who wants to make a 401(k) deferral of 22k for 2010 and fund it now. His taxes are on extension until 10/15. Can it be done or did it need to be deposited by April 15th?

Thanks

[K2retire]

If he had a deferral election on file before the end of 2010, his deferrals are supposed to be deposited within a similar time frame to employee deferral -- except that instead of a pay check date as your starting point you have the date when his income was known in order to calculate the deferral amount. As a practical matter, that is generally the due date of his tax return including extensions.

[Bird]

I could argue that if his deferral election is "$16,500", then that amount is known as soon as it is written on paper or wherever and determination of income is irrelevant to determining the amount, so it is due asap after the end of the year. I'm not so sure that electing a percent, and not knowing the amount to be deposited until much later, is a valid "excuse" for putting it off until Oct 15. In any event the election must be in place before the end of the year.

But...from a tax standpoint, I believe it is definitely ok to put it in this late; it's just late for the prohibited transaction rules. And I don't think the government cares that much about sole proprietors getting their own money in on time.

[K2retire]

I could argue that if his deferral election is "$16,500", then that amount is known as soon as it is written on paper or wherever and determination of income is irrelevant to determining the amount, so it is due asap after the end of the year. I'm not so sure that electing a percent, and not knowing the amount to be deposited until much later, is a valid "excuse" for putting it off until Oct 15. In any event the election must be in place before the end of the year.

But...from a tax standpoint, I believe it is definitely ok to put it in this late; it's just late for the prohibited transaction rules. And I don't think the government cares that much about sole proprietors getting their own money in on time.

True -- but only if you know for certain that he will have more than $16,500 in earned income after all of the adjustments and deductions.

[mbozek]

I could argue that if his deferral election is "$16,500", then that amount is known as soon as it is written on paper or wherever and determination of income is irrelevant to determining the amount, so it is due asap after the end of the year. I'm not so sure that electing a percent, and not knowing the amount to be deposited until much later, is a valid "excuse" for putting it off until Oct 15. In any event the election must be in place before the end of the year.

But...from a tax standpoint, I believe it is definitely ok to put it in this late; it's just late for the prohibited transaction rules. And I don't think the government cares that much about sole proprietors getting their own money in on time.

True -- but only if you know for certain that he will have more than $16,500 in earned income after all of the adjustments and deductions.

Self employed persons can make year end election to contribute maximum amount permited by law/IRS regulations which cannot be calculated until self employment income is determined.