Need Straight Answers on HCE & Annual Addition Issues

[Guest JBarn]

I'm having a hard time finding clear answers to the following two questions:

1. In first year of CY 401(k) Plan, is the look-back year for HCE determination the last calendar year even though there was no Plan?

2. I know if Money Purchase contribution is made 30 days after scheduled tax return date it is an annual addition for the next Plan Year,but is that "next year annual addition rule" the same for all DC Plans or just unique to Money Purchase plans?

Thanks.

I now know answer to #1 is yes, you do use prior year's comp even if there was no plan-any help on #2?

[Guest dl]

it applies all dc plans, see trea reg. 1.415-c. the plan may have 2 additional problems since (1) it missed the tax deduction due date, the pension deduction may or may not be correctly claimed on the business return, (2) it failed to follow the plan's contribution terms, a qualification issue

[Guest JBarn]

dl

Thanks for reply-how would deduction be an issue? I thought DC plans had until tax return due date plus extensions to fund and deduct contribution.

[LCARUSI]

Money Purchase is subject to funding requirements under section 412 - 8½ months after end of plan year.

[Guest JBarn]

LCARUSI,

Please help me with this; are the following statements correct?:

1. Any DC plan contribution made more than 30 days after scheduled tax return date is annual addition for next plan year.

2. If Pension contribution (for Money Purchase Plan)is made more than 8.5 months after end of plan year/tax year(even though extended tax return due date may be beyond 8.5 months after end of plan year/tax year), not only is it annual addition for next plan year, but it is not deductible for the prior tax year.

Thanks

[LCARUSI]

Originally posted by JBarn

LCARUSI,

Please help me with this; are the following statements correct?:

1. Any DC plan contribution made more than 30 days after scheduled tax return date is annual addition for next plan year.

I DON"T THINK SO. SPONSORS ROUTINELY DEPOSIT ON FILING DEADLINE INCLIDING EXTENSIONS. CLEARLY THAT DOES NOT MAKE IT AM ANNUAL ADDITION FOR THE CURRENT YEAR.

2. If Pension contribution (for Money Purchase Plan)is made more than 8.5 months after end of plan year/tax year(even though extended tax return due date may be beyond 8.5 months after end of plan year/tax year), not only is it annual addition for next plan year, but it is not deductible for the prior tax year.

I DISAGREE. MISSING THE 8½ MONTH DEADLINE CREATES A FUNDING DEFICIENCY UNDER 412. WHAT YEAR IT IS AN ANNUAL ADDITION FOR AND WHAT YEAR IT IS DEDUCTIBLE ARE UNRELATED ISSUES (IN MY OPINION)

[Guest JBarn]

dl on 12/1 in this thread believes all dc contributions made 30 days after scheduled tax return date are annual additions for current year.

is money purchase contribution due within 8.5 months of end of plan year? when is it deductible, if at all, if it is made after 8.5 months of end of plan year?

[R. Butler]

LCARUSI is correct that merely because a money purchase contribution is made more than 8 1/2 months after the plan year does not necessarily mean that it is not deductible. Tax-deductible contributions must be made by the due date the employer's federal tax return, including all valid extensions. The rules regarding deductibility are independent of the minimum funding standards.

[Guest dl]

negative. on 12/1/00, i concurred that employer contribution deposited to a dc plan after 30 days of the tax return due date should be accounted as annual addition for the "next" plan year under reg. 1.415-(6)(B)(7)(ii).

the timing of deduction is rest on the employer's federal business return due date plus valid extension. in my view, despite the money purchase plan fail to the meet the irc 412 8.5 month deposit rule, nevertheless subject to a irc 4971 5%/10% excise tax, the contribution would be deductible providing it was deposited to the plan on or before the employer's federal business return due date plus valid extension.