overshot deferral

[thepensionmaven]

My client is a PLLC, taxed as a sole prop.  His total contribution of $55,000 goes on his 1040.

Participant accounts are in group annuity contracts with buckets for employee, employer safe harbor and employer profit sharing.

He apparently overshot his $18,500 by $3,200.

Since he does not get a W-2, accountant wants to know if the $3,200 would be able to be considered as SH, assuming the fund holder made aware there was some sort of bookkeeping error on how the contribution was coded into their system.

 

[Bird]

I say "yes."  We move money from source to source without much thought.  Sometimes won't even bother to move it, if it doesn't really matter at the end of the day and there is a trail.

[duckthing]

Generally I'd say yes, but I think you'd want to take a look at deposit timing as well. You say participant "accounts" so I'm assuming there are some NHCEs involved -- if that's a bad assumption, feel free to disregard the rest of this post! I'd be concerned about a situation where the owner funded $3,200 of his SH contribution for the year during the year and the NHCEs don't get theirs until March or later of the following year.

At any rate I would definitely not go as far as calling it a 402(g) excess and insisting the plan distribute it to him. Worst case, move it along with any earnings to a suspense account and then use it to help fund everyone's SH contributions.