By now, you have heard of the Department of Labor’s regulations for qualified retirement plans regarding the timing of the deposit of EMPLOYEE contributions (Pre-tax and Roth) and loan repayments to the plan trust.
Did you know that there are ALSO rules in place that govern when EMPLOYER contributions (employer match, profit sharing, safe harbor, etc.) must be deposited to the plan? Two annual deadlines govern the timing of employer contributions: 1) Deductibility and 2) Annual Additions.
1. Deductibility – Employer contributions to a qualified retirement plan are tax deductible and most Plan Sponsors take advantage of this. In order to deduct employer contributions, they must be deposited to the plan trust NO LATER than the due date of your federal tax return (including extension). Depending on the entity type of the Plan Sponsor, that date can vary.
- C-Corporations (or LLC taxed as C-Corp) and Sole Proprietorships (or LLC taxed as a Sole Proprietorship) – the federal tax return deadline is April 15th and extended deadline is October 15th.
- S-Corporations (or LLC taxed as S-Corp) and Partnerships (or LLC taxed as Partnership), the federal tax return deadline is March 15th and extended deadline is September 15th.
2. Annual Additions – Employer (and employee) contributions to a qualified retirement plan are considered “annual additions” for each “limitation year” (most often the plan year) and are subject to the Internal Revenue Code Section 415. For each “limitation year” the IRS caps annual additions at a certain amount. For contributions to be considered annual additions for a plan year, they must be deposited to the plan trust by a certain date. While the deductibility deadline is based on the entity type of the Plan Sponsor, the annual additions deadline is based on the contribution type.
- Safe Harbor Matching and Safe Harbor non-elective contributions – must be deposited no later than the last day of the plan year following the plan year in which the contribution is being made. (i.e., for the 2019 plan year, safe harbor contributions must be deposited no later than December 31, 2020 to be considered an annual addition for the 2019 plan year.)
- Non-Safe Harbor Matching and Non-Safe Harbor non-elective contributions – must be deposited no later than 30 days following the due date of the company tax return (including extensions).
Like the late deposit of employEE contributions, the late deposit of employER contributions will have consequences that need to be addressed and possible corrections that may need to be made. Your Noble Davis Plan Consultant is equipped with the expertise and resources to help you correct a late deposit (employEE or employER) as well as help assess how future occurrences can be avoided. It’s what we do!