Deadline For Funding 401(k) Deferrals!

November 26, 2019 | posted in: Accountants | by

Many employers think the deadline for depositing a 401(k) contribution is the 15th business day of the monthafterthey withheld the contribution from an employee’s wages.

That is not correct, though.Employers who wait until the 15th day of the following month to deposit deferrals might find out that they owe a penalty, among other unpleasant consequences.

Even though regulations state the deposit should never occur later than the 15th business day of the following month after the contributions were withheld from employee wages, that is NOT the actual deadline; it is only anouter limit of what is reasonablytimely.

In actuality,401(k) deferralsmust be deposited as soon as possible after the employer withholds the money from employee wages.What does that mean for your clients’ businesses?

Forlarger businesses, a timely deposit will most likely happenwithin a couple of business daysof the payroll withholding.Forsmaller businesses, there is a safe harbor that allows for more time to deposit.The safe harbor applies to businesses withfewer than 100 participants.The safe harbor says a small business’ 401(k) deposits are timely if they aremade within seven business daysfrom the date on which the contributions were withheld from employee wages.

We know this is confusing, so don’t let your questions cost your clients money.Call us to help clarify any confusion you may have on this, and any other, matter.