Deposit timing of PS $

[doombuggy]

One of the plans that I have is a sole prop and his extension is tomorrow. the plan is a 401k Profit Sharing plan with a SHNEC feature also. Today he is asking me the following:

Is there a big penalty if the [profit sharing] money goes in a bit late? We have a big chunk of change coming in at the end of the month.

I had told him that if he's going to deduct the PS on his 2013 return, then it needs to be deposited by tomorrow. I did find something in the EOB that talks about mailing the deposit and having it postmarked tomorrow.

I don't think he is going to go this route, but what are the penalties if he makes this deposit late? I am assuming that this would come to light in an audit. The plan consists of himself and 2 staff members.

[401king]

Do you mean late, as in after the 12/31 Safe Harbor Deposit deadline? Or late as in after their tax return? If deposited after their tax return they just have to account for the 25% deductibility limit, assuming it's still deposited before the true deadline of 12/31.

[Bird]

If it's "late" meaning after 10/15, then it's not deductible. That's not a penalty issue, unless it triggers additional taxes (probably). Really something to be discussed with the accountant.

[ESOP Guy]

You need to watch the 415 rules in this one. I am doing this from memory. I believe if they don't deposit the money with 30 days of 10/15/2014 then this contribution can no longer be a 2013 Annual Addition but is an annual addition in the year of deposit.

Double check me on the 415 regs but I am rather sure but as this is from memory not 100% sure on this.

I am doing this on my home computer. When I get on my work computer I might be able to find a link quickly to support my position. Or maybe someone will read this that can confirm or deny my position. Like I said I know there is a 415 issue lurking out there and I am rather sure I described it right.

[ESOP Guy]

I found what I was looking for:

http://www.law.cornell.edu/cfr/text/26/1.415%28c%29-1

(B) Date of employer contributions. For purposes of this paragraph (b), employer contributions are not treated as credited to a participant's account for a particular limitation year unless the contributions are actually made to the plan no later than 30 days after the end of the period described in section 404(a)(6) applicable to the taxable year with or within which the particular limitation year ends. If, however, contributions are made by an employer exempt from Federal income tax (including a governmental employer), the contributions must be made to the plan no later than the 15th day of the tenth calendar month following the end of the calendar year or fiscal year (as applicable, depending on the basis on which the employer keeps its books) with or within which the particular limitation year ends. If contributions are made to a plan after the end of the period during which contributions can be made and treated as credited to a participant's account for a particular limitation year, allocations attributable to those contributions are treated as credited to the participant's account for the limitation year during which those contributions are made.

Emphasis is mine.

So if the deposit is made more then 30 days after the 404(a)(6) date- which is the extended due date of the sponsors tax return-- the annual additions can not be credited the year allocated but the year deposited.

[Tom Poje]

I think the IRS has indicated if it is a required contribution (e.g. safe harbor) then it becomes a gray area. (ASPPA conference a few years ago)

otherwise you have a situation in which the person is better to make the contribution late (e.g. 1/1 of the following year under EPCRS and it counts for the 415 limit in the prior year.)

it makes no sense that if deposited between 10/15 and 12/31 it counts towards the 415 limit for the following year rather than the year intended.

yes, that is what the regs say, but that makes little sense in the case of a required contribution.

I can fully understand the issue if it is a discretionary - you are late, there is a price to pay. especially with cross tested plans and you could be bumping the HCEs up big time.

In the case of a SHNEC, you aren't late since you have 12 months after the end of the plan year to make the deposit. Again, it simply makes no sense to encourage people to be 'late' and correct using EPCRS after the 12 month deadline.

but then again, sometimes the regs make little sense....

[doombuggy]

Thanks for the responses! I have been on vacation so I haven't heard what this plan sponsor decided yet. We filed his 5500 on a cash basis. There are 3 people in the plan (owner included) and he indicated he would't have the actual funds to deposit until the end of this month.

[austin3515]

Are you asking what the penalties are for taking a deduction in 2013 even though the deposit is not going to be made within the time frame permitted? That would be a serious issue, since he would knowingly be taking a deduction he was not eligible for. I kinda think maybe that is what you were asking.