Funding Profit Sharing Contributions Throughout the Year

[Vlad401k]

Let's say a company has 1 owner and a few NHCE participants. They fund 3% SHPS during the year. Can the owner also choose to fund additional contributions to himself during the year?

 

For example, let's say he decides to fund an additional 6% (in addition to SHPS of 3%) in Profit Sharing. Is this allowed? They would pass Gateway, but we don't know if the General Test would be passing based on 9% to owner and 3% to NHCEs.

 

If this is allowed, can he fund more than 3% SHPS plus 6% Profit Sharing to himself during the year, while only funding 3% SHPS to NHCEs? At that point, they would not be passing Gateway and additional contributions would definitely be required for NHCEs to pass testing.

 

Thanks!

[CuseFan]

Generally, no, that would not be allowable as it (deposit timing) would be a discriminatory BRF. Maybe 6% owner PS and 0% NHCE PS deposited throughout the year would be OK but as you say, there's no guarantee it would pass testing. If more NHCE PS is then required, would that create retroactive BRF discrimination? Maybe, probably would not know unless and until audited, if ever. Certainly going more than 6% is not a good idea. How important is getting that extra 6% in sooner compared to the possible risk? You can communicate the issues and, where there may be compliance ambiguity, the owner can decide how to proceed and accept any risk (but get it in writing).

Another concern may be if PS provision has any conditions for entitlement in the document.