Personal contribution.

Good Morning!

Plan is terminating due to business closure and there is still once active participant who wants to do a personal contribution strictly from his funds directly into the 401k plan.

Personal contribution (with no funds coming from the Company)  is this permissible? 

Thank you. 

It depends on if the plan allows after-tax contributions outside of payroll deduction, and that the termination date hasn't already passed.

6 minutes ago, Bri said:

It depends on if the plan allows after-tax contributions outside of payroll deduction, and that the termination date hasn't already passed.

the termination date was 09/01/2023 and the plan document is silent on the personal contribution. 

A. It's after the termination date so no new contributions should be allowed.

B. As Bri notes, the only "personal contribution" (huh?) in this scenario would be an after-tax contribution, which apparently is not permitted and often problematic.

C. I doubt the participant asking has a clue about it and are likely asking about a tax-deductible contribution of some sort.

This should be squashed.

Caveat: A self-employed person (sole prop or partner) can make contributions from his or her own funds. If it is the/an owner asking, then it might warrant more thought, although the term date has passed.

1 hour ago, Bird said:

A. It's after the termination date so no new contributions should be allowed.

B. As Bri notes, the only "personal contribution" (huh?) in this scenario would be an after-tax contribution, which apparently is not permitted and often problematic.

C. I doubt the participant asking has a clue about it and are likely asking about a tax-deductible contribution of some sort.

This should be squashed.

Caveat: A self-employed person (sole prop or partner) can make contributions from his or her own funds. If it is the/an owner asking, then it might warrant more thought, although the term date has passed.

this is the owner. 

Oh, as a sole prop, then this could potentially be the company's final contribution in the year of termination.  Subject to 404 and 415, of course. 

I was interpreting the OP as some rando wanted to apply personal funds towards his deferral ceiling before his distribution.

But whatever is done, or whatever opportunity is provided to the owner, must be provided also to the rest of the employees.

20 hours ago, PS said:

this is the owner. 

Well that changes everything. Forget about the fact that the plan has terminated, and consider what type of contribution this could be, and what kind of testing would have to apply and how it would have to be shared, if necessary, and then consider un-terminating the plan. 

4 hours ago, Bird said:

Well that changes everything. Forget about the fact that the plan has terminated, and consider what type of contribution this could be, and what kind of testing would have to apply and how it would have to be shared, if necessary, and then consider un-terminating the plan. 

We already started the termination process and all participant have received the term notice and the force out distribution for unresponsive participants have been set for 12/05.  I thought personal assets are not eligible compensation permissible for contribution to the plan is that not true? 

21 hours ago, PS said:

We already started the termination process and all participant have received the term notice and the force out distribution for unresponsive participants have been set for 12/05.  I thought personal assets are not eligible compensation permissible for contribution to the plan is that not true? 

In accounting terms, assets are a balance sheet item and compensation is an income statement item. So the phrase "personal assets are not eligible compensation" is frankly nonsensical.

If the business is a sole proprietorship, then "personal assets" are indistinguishable from "business assets" and could be used to make contributions. Whether there is business income to support the contributions is an entirely different question.

If the business is a corporation, then there is absolutely no way that a participant can make a "personal contribution" (other than as an after-tax contribution and there is no way that will work here). 

If the business is a sole proprietorship, then if the income warrants it, a contribution might be able to be made from just about any assets under the owner's conrol; whether it is an individual 401(k) contribution or a "company" contribution would have to be determined under the facts and circumstances present, including income. But income for a sole prop is generally determined on the last day of the year, and for whatever reason it is being term'd before that, so arguably there is no income from which to make any type of contribution. Given the post-termination date nature of the discussion, I'd suggest you say "no" and move on.

On 11/22/2023 at 10:31 AM, Bird said:

In accounting terms, assets are a balance sheet item and compensation is an income statement item. So the phrase "personal assets are not eligible compensation" is frankly nonsensical.

If the business is a sole proprietorship, then "personal assets" are indistinguishable from "business assets" and could be used to make contributions. Whether there is business income to support the contributions is an entirely different question.

If the business is a corporation, then there is absolutely no way that a participant can make a "personal contribution" (other than as an after-tax contribution and there is no way that will work here). 

If the business is a sole proprietorship, then if the income warrants it, a contribution might be able to be made from just about any assets under the owner's conrol; whether it is an individual 401(k) contribution or a "company" contribution would have to be determined under the facts and circumstances present, including income. But income for a sole prop is generally determined on the last day of the year, and for whatever reason it is being term'd before that, so arguably there is no income from which to make any type of contribution. Given the post-termination date nature of the discussion, I'd suggest you say "no" and move on.

Thank you 🙂