Timing of 3% Safe Harbor

[52626]

The client has until the filing of his tax return to fund the 3% safe harbor.

He is making the safe harbor on a monthly basis.  Is there is an issue if he does not make the payment for a couple of months when the cash flow is low?

[Lou S.]

Probably no issue unless you run into a BRF issue with respect to timing if HCEs got their 3% earlier than NHCEs. As long as everyone gets what they are supposed to in the end, you should be fine.

[Paul I]

We have several clients that like to fund the SHNEC more frequently and some even every pay period.  Given the contribution is fully vested and there is no last day rules, it makes it easier to distribute the entire vested balance all at once and avoid making a residual payment afterwards.

Note that having an accrued SHNEC for a terminated participant as of the beginning of the next plan year could affect the count of participants with account balances used to determine if the plan needs an audit.  The 2023 form instructions say " line 6g(2) should be the number of participants counted on line 6f who have made a contribution, or for whom a contribution has been made, to the plan for this plan year or any prior plan year."  It is not clear if the phrase in bold is intended to be applied.