self employed and deferrals

This has probably been asked previously, but I can not locate.

This concerns a sole proprietor that maintains a 401(k)/PSP for the benefit of his company.

Of the net income derived from the sole proprietorship, stepping aside the calculation of any profit sharing for the non-owners, how can one determine what the owner's deferrals are (if there are any), vs if the contribution is to be considered an employer contribution (profit sharing)?

Why am I thinking that unless the sole proprietor makes an election, prior to 12/31, the contribution must be considered an employer contribution??

Any other references or thoughts on this subject?

If I am not mistaken, SECURE only allows retroactive election if and only if the plan is a new plan established by 4/15/2024 (no extension allowed).

I am not aware of any retroactive election for deferrals for already existing plans i.e. elections had to be made by 12/31/2023. If no election was made (or an older one exists), PS only i.e. stuck with 25% limit.

I might be wrong and curious what others will say.

Looking further into this, as long as a deferral election is made prior to 12/31/2023, the sole proprietor and/or partner has until tax filing due date plus extension to make elective contribution.

I agree with the sentiment that there must be a written election in place by the end of the year to describe the deferrals for the self-employed owners.  Usually we recommend that they write it descriptively, such as "the maximum allowed for the year that does not violate deferral or maximum annual limits.

Some people I've worked with over the years have suggested that the "seven business day" clock for deferral deposits starts when the Schedule C or K-1 is completed.  I've never had an auditor ask for that level of detail, but maybe that is something you want to consider.

25 minutes ago, AlbanyConsultant said:

Some people I've worked with over the years have suggested that the "seven business day" clock for deferral deposits starts when the Schedule C or K-1 is completed.

That begs the question, what does "completed" mean? 

When it was prepared? 

When it was sent to the client for review?

When it was reviewed by the client?

When the client communicates to CPA/preparer that they agree with the K-1?

When the full return is accepted/signed by the client?

When the return is filed with the IRS?

The list goes on, which is probably why you have never had an auditor ask the question 

Do not give the auditors any ideas

5 hours ago, RatherBeGolfing said:

That begs the question, what does "completed" mean? 

When it was prepared? 

When it was sent to the client for review?

When it was reviewed by the client?

When the client communicates to CPA/preparer that they agree with the K-1?

When the full return is accepted/signed by the client?

When the return is filed with the IRS?

The list goes on, which is probably why you have never had an auditor ask the question 

Exactly.  I agree 100% - it's a complication that nobody needs.

17 hours ago, AlbanyConsultant said:

Exactly.  I agree 100% - it's a complication that nobody needs.

I have not run across an auditor asking those questions.

I don't know if any would go quite this far, either.