Deadline For Funding 401(k) Deferrals!

October 21, 2019 | posted in: Blog, Plan Sponsor Corner | by

Many employers think the deadline for depositing a 401(k) contribution is the 15th business day of the month after they 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 an outer limit of what is reasonably timely.

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

For larger businesses, a timely deposit will most likely happen within a couple of business days of the payroll withholding.  For smaller businesses, there is a safe harbor that allows for more time to deposit.  The safe harbor applies to businesses with fewer than 100 participants.  The safe harbor says a small business’ 401(k) deposits are timely if they are made within seven business days from 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.