Funded by 12/31 or when Taxes Filed

[Guest hherpel]

I run a small business. We started a dbf 1993 tax year by through a certain mutual fund account. Because the fund we chose did not do great, I was considering funding the dbf through a differnet mutual fund for 1999.

My accountant says that this is fine and the DBF must be funded by the time the Corp tax is filed.

My financial advisor says this is not true - rather, the new mutual fund account had to have been "opened" by 12/31/99.

I checked the IRS web site and couldn't determine who is correct. Any help would be appreciated.

[Guest hherpel]

Thank you for your timely and thorough response.

[Guest Ray Williams]

Your Plan must be funded for each Plan Year by the date that your corporate taxes are due, including any extension. For a 12/31/1999 tax year your taxes are due March 15, 2000. However you may extend filing your tax return until September 15, 2000. Your contribution for the 12/31/1999 Plan Year must be made by that date. If you fail to make the payment by that date( 9/15/00) you will have to file a 5330 for the amount of the underfunding and pay the excise tax due.

As a tax planning aid our office usually recommends using a first day of the Plan Year Valuation Date.Thus, for the 2000 Plan Year we would prepare your valuation early in 2000, allowing you until 9/15/01 to make the payment.

This discussion does not consider the issue of quarterly payments that might be required if you fail to make a payment and/or choose to make your payment on 9/15.

If you have any other questions, we will be happy to assist you.

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[AndyH]

Note: The above assumes that the plan year and the company's tax year are the same, which is not always true. The actual due date for the deposit is 8 1/2 months after the end of the plan year, not the company's tax year. For tax deduction purposes, in the case where the two years are not the same, it may be advisable to deposit it earlier, but the deadline is always 8 1/2 months following the plan year.

[Guest hherpel]

Our dates are actually the same. Thank you for the additional information.