ROTH Deferral... Too Late?

This 401(k) plan was moving along very smoothly.  Then I discovered that for the owner (who didn't defer this year) received a match contribution ... on nothing.  The CPA told the bookkeeper to put $4500 in for him.  Who knows what he was thinking.   We have some true-ups for the other employees that we will eat up most of the $4500 but there is still a some left ($2700).  To remedy this can the owner put in the $2700 as a Roth deferral which would me batches 100% because it is so small?  Amend the W2?  or is it too late?

Yes, it is too late to make a deferral election (including a Roth deferral election) for 2023. A deferral election has to be in place before the compensation is paid to the participant.

The contribution that was made to the plan needs to be allocated according to the plan's allocation formula for employer contributions.

Yup.  so the $2700 has to be paid back to the business.... OR everyone can share in that $2700 as a PS contribution pro-rata.. won't be much but that is an option, right?  Thanks!

It's unlikely that any portion of the contribution could be returned to the sponsor. If the plan document says that employer contributions will be allocated pro rata, then that's what should happen. If the contribution couldn't be allocated (maybe everyone was already at their 415 limit, for example) then EPCRS says to keep the contribution in an unallocated account and use it for future employer contributions before any additional employer money may be actually paid into the plan.

There was no PS contribution for 2023... no 415 issues to worry about.  That is what we are going to do, allocate the (actually) $4100 to everyone pro-rata.  

Thanks!

Just curious - if the owner has SE income that couldn't be determined until April 2024, wouldn't he be able to elect/make a deferral (pre-tax or Roth) at that time for 2023? 

Even though the individual's compensation may not be known until after the end of the year, it is deemed to be available to them on the last day of the tax year. That is why the election has to be in place before the end of the tax year (SECURE 2 exception for first-year sole props aside). See 1.401(k)-1(a)(6)(iii).

So it seems that if the owner had a written election in place as of 12/31/23 that said he would defer x% of comp, he could actually deposit the deferral today for 2023.  In other words, when 1.401(k)-1(a)(6)(iii) says an election cannot be made after the end of the year, it's referring to the date of the owner's written intention regarding the amount he aims to defer, and not the physical act of the actual deposit (which can be done months later), if I understand correctly. 

Yes, it is only the election that has to be made before the end of the year. The actual deposit of the contribution might take place some time later.

Since exact comp is unknown, instead of a percentage election, they might want to make an election for a dollar amount. For example they might elect to defer the amount of the 401(k) limit (plus catch-up if applicable) for the year in question.

Question... if they made the election before the end of the year  and then when all the dust settled they decide they don't want to go through with the full amount... they decide they want to reduce what they thought they wanted to ... is that ok?

Sure, as long as they don't mind disqualifying their CODA.

Think of it like a participant who made a deferral election, then got their paycheck but decided they contributed too much to the 401(k), and wanted some of it back after the fact. What would you tell them?

As my mom always said to me... Tough Beans.   

Got it.  Thanks