Prefund Profit Sharing

[Rai401k]

Plan has integrated profit sharing, first time they have decided to fund a PS contribution.

The Plan Year 1/1/2014-12/31/2014 (calendar) but the company's fiscal year ends 6/30/14. Is it ok for the employer to pre-fund the profit sharing contribution now (before 6/30/14) to receive a deduction and have it sit in a fake/forf account and allocate it to the participants at the end of the year 2014.

[My 2 cents]

To justify the deduction, wouldn't it have to be a bona fide profit sharing contribution? How could it be deductible and not allocated to the participant accounts? Maybe I just don't know the rules for profit sharing deductions.

[ESOP Guy]

Isn't that the hard way? You can fund a deductible contribution as late as the due date of the tax return you are taking the deduction on. So you often times can have up to 9 months to fund the contribution. So why not deduct the contribution on the 6/30/2014 tax return, extend it? You would have well after 12/31/2014 to actually deposit the contribution.

I am not sure if there is anything you need to worry about regarding the allocation because of the different year ends. I can't remember working on any such plans. I would double check that you don't have to allocate it to people who were employed on the sponsors last day but not the plan's last day. I don' think you would as the plan document wouldn't read that way but worth a check.

[Rai401k]

Isn't that the hard way? You can fund a deductible contribution as late as the due date of the tax return you are taking the deduction on. So you often times can have up to 9 months to fund the contribution. So why not deduct the contribution on the 6/30/2014 tax return, extend it? You would have well after 12/31/2014 to actually deposit the contribution.

I am not sure if there is anything you need to worry about regarding the allocation because of the different year ends. I can't remember working on any such plans. I would double check that you don't have to allocate it to people who were employed on the sponsors last day but not the plan's last day. I don' think you would as the plan document wouldn't read that way but worth a check.

You're right, ugh! I don't know why I didn't think of that. Thank you!