Advanced Underwriting Consultants

Ask the Experts – May 1

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: Does a 401(k) plan participant have until April 15, 2014, to make an elective deferral on behalf of 2013?

Answer: No. Elective deferrals are contributions made by an employee, and while such deferrals are typically made as payroll deductions (e.g., monthly, biweekly, etc.), nothing requires this schedule.

However, the IRS says that the employee must make the election by the end of the year for which the deferral is being made, or the date of the employee’s last paycheck of the year if the deferrals are automatic. Therefore, for 2013, the deadline is generally December 31, 2013.

The Department of Labor requires the employer to deposit deferrals to the trust as soon as possible, but in no event can the deposit be later than the 15th business day of the following month.

Therefore, if the employee is also the owner of the business, he can theoretically deposit the deferral money as late as mid-to-late January, 2014. However, the 15th day of the following month rule is not a safe harbor rule. That is, if 15th of the next month isn’t “as soon as the employer can” deposit the deferral money into the 401(k), then the deposit isn’t timely, and the mistake could give rise to plan disqualification.

The safest bet is to plan ahead and deposit the deferral funds by the end of the year.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.