Self Employed (SEI) - Timing of election to defer?

[jgb44]

Suppose there is qualified plan that is a partnership. A partner may not know his/her earned income until after the close of the plan year. Does the partner have up until their taxes are filed in order to determine the amoutn and deposit any employee deferral or employer contribution to the plan? Or is there other rules that forces them to make this decision earlier? If there is, administrative issues are that earned income may not be available in time for such deadline.

Can someone please comment on the administrative timeline for SEI's making a contribution to a plan.

Thank you in advance.

[PensionPro]

using the search function may reveal more responses ...

http://benefitslink.com/boards/index.php?/topic/47446-timing-of-deferral-on-k-1-income/

[Tom Poje]

see also the 401k regs

page 12 of the pdf (from the preamble) - can make deferrals even before you know how much comp you will (with a caveat of course)

p 63 the election itself to defer (I assume and how much) is supposed to be in place before the end of your tax year.

401k regs.pdf

[jgb44]

@ Tom Poje - Thank you for the link. Most of the guidance I can find says that the election to defer by a SEI must take place by the last day of their taxable year. I am trying to determine if an election can be made after the last day of the taxable year but before the time their taxes are filed. How can an election be made if a individual has not yet met with their tax advisor to determine what their earned income even is?

[Tom Poje]

that's what the regs say, by last day of taxable year. kind of hard to know since you don't know what comp you will have. but I guess that is the comment in the preamble, you need to actually have the comp when all is said and dine. as I recall from an ASPPA conference, the IRS indicated if you deferred during the year and ended up with no comp, the deferral comes back due to 415 violation.

well, of course how does anyone know when the partner has actually made his election. kind of hard to prove, but I guess if you ever were audited...

but all that aside, I suppose you could write an election form to say something like

3% if my earned income is $x and 5% if my earned income is $y and have it signed by 12/31 (or whatever)

[Bird]

I agree that the election must be in place by the end of the year.

Editorial - seriously, someone doesn't know how much they want to contribute, in dollar terms, on Dec 31? I just tell my self-employed clients that they need to pick a dollar amount, not a percent, so that we don't have that variable hanging over us until 10/15. "I need to know my income before I decide how much to contribute" is not a valid reason to give self-employeds an advantage over everyone else when it comes to making 401(k) elections.