Funding Deadline

[Guest]

Funding or Tax deduction?

For Funding (minimum funding standards) contributions must be deposited within 8 1/2 months after the close of the Plan Year. (IRC Section 412)

Deductions get a bit more complex, and it depends both the fiscal year end and the plan year end. Also, past deduction (accounting) practices can come in to play. Do you have a specific example?

[Guest jason]

When is the funding deadline for a defined benefit plan? Is it different for a corp. and a sole prop?

[Guest jason]

A sole proprietor has a DB plan and would like to know the deadline for funding. In addition, should quarterly contributions be made during the year.

[Guest]

8 1/2 months after the close of the Plan Year for funding.

Regarding quarterlies, it depends on the funded status of the Plan. Many sole-props. choose not to make quarterlies even if they are required in order to increase their deductions.

[Guest jason]

Is the 8 1/2 months a set timeline or would the individual be required to file for an extension to receive the additional time beyond their tax filing deadline?

[John A]

As Keith noted above, the funding deadline to meet minimum funding standards is a 8 1/2 months after the close of the plan year, no extension required.

For a contribution to be deductible on a tax filing, it has to be made prior to the filing. Assuming the tax year and the plan year are the same and that it is desired to make the contribution 8 1/2 months after the close of a certain plan year and deduct the contribution for the fiscal year that is ths same as that plan year, it would be necessary for the employer to file for a tax-filing extension. For example: fiscal year and plan year are 1998. Contribution for minimum funding must be made by September 15, 1999. If taxes are filed on March 15, 1999, then the contribution would have to be made on or before March 15 to be deducted on the 1998 filing. If the company files for a tax-filing extension to September 15, 1999, then a contribution that is made on or before September 15, 1999 for the 1998 plan year may be deducted on the 1998 return.

It is possible for a contribution to be credited to one plan year for minimum funding purposes and to be deducted for a different fiscal year. In the example above, if the company filed the 1998 taxes on March 15, 1999 but did not make the contribution for the 1998 plan year until September 15, 1999, then the contribution would satisfy the minimum funding requirement for 1998 but would not be deductible on the 1998 return - but would be deductible in later fiscal years.

AS stated by Keith above, the minimum funding rules are in IRC Section 412.

The deductibility rules are in IRC Section 404. And remember, as Keith pointed out, deductions depend on the fiscal year end, the plan year end, and past deduction practices.