top heavy minimum

[Chippy]

One of my clients, a partnership, filed their tax return on 3/15 without the 2012 top heavy minimum contribution. I understand that for 2013, i'll need to include that in my annual additions testing and for the 25% company deduction.

My question is.....what is the due date for this deposit since the tax return has been file? Is there a penalty due since it wasn't made by the due date of the tax return?

[Tom Poje]

any write up I have seen that mentions a deadline has said "12 months after plan year end" or "The same date as a match is due [which would be 12 months]" [or I guess for that matter a safe harbor contribution!]

as for annual addition, would agree it applies in the year it applies. (otherwise it would be impossible to seld correct if you missed someone - e.g. ee made 10000 and is due 300 in top heavy. He quits Jan 2 the following year, so has no comp, it would be impossible to fix a year later if you were worried about the annual addition.

I would think if the contribution is made after 12 months the self correction rules imply you make a gains adjustment.

[Chippy]

thank you Tom. So there is no late penalty due at this time or a gains adjustment? (as long as the deposit is made by the end of the plan year)

thanks so much

[david rigby]

Not to express doubt about Tom's advice, but ...

this situation screams to get the original questions answered by the plan sponsor's tax advisor or legal counsel.

[Tom Poje]

I'd agree with Dave's comments. (I'm not even sure why the company doesn't amend the filing)

as a further note, here is a comment from an ASPPA Q and A, and recall that such comments don't necessarily represent an actual Treausry position.

How does the IRS feel about plan sponsors who fail to fund required top heavy contributions or 401(k) safe harbor contributions?

Why isn't the failure to fund these contributions addressed on the Form 5500 or related schedules similar to late submissions of pretax deferrals or failure to meet minimum funding requirements?

They don't like them. They have no answer as to why it's not addressed on schedules.

2010 ASPPA Conference Q and A (Last question on page 9 of the handout

also see Q #11 on the IRS Fix it Guide (no deadline date is given or suggested, clicking on 'more' provides a few examples and more complete description)

http://www.irs.gov/Retirement-Plans/401(k)-Plan-Fix-It-Guide

[Belgarath]

Revenue Procedure 2013-12, Appendix A, .01(1) says that ..."Corrective allocations and distributions should reflect Earnings and actuarial adjustments in accordance with section 6.02(4) of this revenue procedure."

.02 of the Appendix A says to properly contribute and allocate the Top Heavy minimums.

So although the DEADLINE is a little gray, I don't think there's much question that you have to include earnings. And informally, it seems like most folks (me included) use the one-year standard, although that's only anecdotal.

[Chippy]

If they have until the end of the plan year to make the top heavy minimum, do they have to include earnings if they make the 2012 top heavy minimum by June 30, 2013? I didn't think this was considered late even though they filed their taxes already.

[BG5150]

When the contribution is DUE and when it's DEDUCTIBLE are two different matters.

I would say the TH minimum for the 2012 plan year is DUE by 12/31/13. No earnings adjustment needed. As to the DEDUCTIBLE, I would refer them to their accountant.

For 415, it is treated as an annual addition1 if it's contributed within 30 days of the due date of the tax return (including extensions).

Why don't they just amend the return? If anything, it's a deductible contribution and it must be made.

[Belgarath]

Sorry - I was focusing on how to handle a "late" contribution in terms of earnings, not on whether your situation actually constituted a "late" contribution. I agree that it isn't "late" under the timeframes you are using, and that therefore no earnings would be necessary.

I should read the original posts more carefully...