Safe Harbor401(k) with Sponsor LLC

Plan sponsor is an LLC taxed as a partnership.  They sponsor a safe harbor 401(k) with elective, safe harbor non-elective and profit sharing.

They are on extension .  Plan is on a platform with Equitable.  Contributions for the employee are correct.  As far as the partners, they always mess up the allocation, Equitable returned some money as they claimed there ws too much contributed to the elective portion; this took 3 months to straighten out. The client continually makes the contribution to the wrong "bucket"and Equitable returned one of their deposits.

Maybe a dumb question, but for a partnership, how does one determine the split among deferral, profit sharing and safe harbor?

We had advised them that any contribution made during the year go to profit sharing, and then redistributed to their different "buckets."

How is it determined how much goes into which in order that the contriubtions for the employees is done correctly.

Self-employed individuals have to complete a deferral election before the end of the plan year. Whatever they put on that election will determine how much their deferral is.

The safe harbor non-elective contribution will be 3% of their net earned income. That will be a circular calculation, so it's not generally possible to know exactly how much it will be before the end of the year. If earned income is expected to be well above the 401(a)(17) limit then it might be reasonable to use that.

Assuming profit sharing is discretionary, it will be whatever amount the employer decides to allocate, within the constraints of sections 404, 401(a)(4), and 415.

The best approach is to follow the provisions of the plan to identify the source of the contributions whenever a deposit is made into the plan.  It should be easier to identify the source at the time of deposit instead of trying to "redistribute" everything later on.

Without going into too much detail, consider that:

• Partners as well as employees must make elective deferral elections on or before the end of the plan year.  If partners are deferring from draws, then any deposits from the draws based on deferral elections are deferrals.   If too much is designated as elective deferrals, it is appropriate for any excess amounts to be distributed using the excess deferral procedures.
• Deposits for the SHNEC and profit sharing contributions should be made for all partners and employees at the same time.  The plan has a problem if the partners get allocations of these non-elective employer contributions earlier than the employees.

While not endorsing the "redistribution" process, hopefully any earnings related to amount moved around include earnings associated with those amounts.  Otherwise, those earnings are in the wrong accounts.