New Plan Salary Deferral Timeline

[AdKu]

What is the salary deferral timeline for a new plan for the owner?

My client finally decided to establish a 401(k) profit sharing plan for the 2015 plan year (January 1 to December 31) last November.

Since there will be the last two payroll to defer from and 100% of the owner final two payroll check doesn't add up to get him to the 402(g) max that he wants to contribute, will he be allowed by law if he write a personal check to make-up the remaining amount to get him to the maximum deferral amount.

What is the salary deferral timeline ramification for the other non-owner participants?

Thanks!

[Jim Chad]

No. He cannot write a personal check. It has to be payroll deducted. Can he pay himself a bonus?

[BG5150]

Will an $18,000 deferral, probably leading to a high ADP, adversely affect the plan's ADP testing?

[Lou S.]

Probably gonna be top-heavy too.

[Mike Preston]

I'm not willing to completely discount the possibility that the entity in question is a sole prop. So, I'll ask: Is it?

[AdKu]

Yes, it is a sole prop.

[Mike Preston]

Then what did you mean by "payroll checks"?

[AdKu]

I do run a similar situation to a new Sole Prop potential client in addition to the s-corp.

[Bill Presson]

The thing I hate worst is when people want advice but don't provide all the information that might be needed to actually provide the advice.

This isn't 20 questions. If you want advice, post your situation and stop wasting peoples time.

Good grief.

[jpod]

AdKu, to express the sentiment a little differently, your statement of the question and the facts is too vague. And, your reference to "final two payroll check[sic]" for the owner makes no sense in the context of an unincorporated sole proprietor. If you can tell us precisely and with confidence what the tax status is of the employer/plan sponsor, that may provide enough clarity for someone to suggest an answer via this message board. If you have no idea what I am talking about then you need more than what this message board can provide.

[Bill Presson]

AdKu, to express the sentiment a little differently, your statement of the question and the facts is too vague. And, your reference to "final two payroll check[sic]" for the owner makes no sense in the context of an unincorporated sole proprietor. If you can tell us precisely and with confidence what the tax status is of the employer/plan sponsor, that may provide enough clarity for someone to suggest an answer via this message board. If you have no idea what I am talking about then you need more than what this message board can provide.

Thank you.

[AdKu]

My original question was about the salary deferral timeline for S-Corp.

But, most recently I received a proposal request for sole prop with similar issue.

Following Mr. Preston prior friendly advice to one of my postings, I refrain from posing the same question when entity under discussion changed.

Sorry if you find it offending.

[BG5150]

No offense, AdKu, but in post # 6, you are saying it's a sole prop. But in #12, you are saying it's an S-Corp. You can understand our confusion, I hope.

That said:

If it's an S-Corp, he cannot just write a personal check. It must run through payroll and be part of his W2. It cannot be part of the dividend income.

If sole prop he can, and the deferral is noted on the Schedule C. This is assuming he generates enough net income.

If he is the only participant he should be ok. But once you start adding employees to the mix, Top Heavy will be of concern. If there are EE's for 2015, the ADP becomes an issue.

[AdKu]

Thank you BG5150!

I totally understand the confusion and I apologize for not making my question as clear it should be.

As far as the sole prop 401(k) plan goes, I don't think there will be any top heavy issues as the owner intended to contribute the $6,000 Age-50 catch-up contribution.