Accounting firms get this common tax question asked each year by their clients and business owners:
When are employers required to make employee deferrals (to simple 401(k), 401(k), etc.) and company matching payments for company retirement plans?
Here are the answers broken up into different deferrals and company matching payments.
SIMPLE 401(k) Plans
“The SIMPLE 401(k) plan was created so that small businesses could have an effective, cost-efficient way to offer retirement benefits to their employees. A SIMPLE 401(k) plan is not subject to the annual nondiscrimination tests that apply to traditional 401(k) plans. As with a safe harbor 401(k) plan, the employer is required to make employer contributions that are fully vested. This type of 401(k) plan is available to employers with 100 or fewer employees who received at least $5,000 in compensation from the employer for the preceding calendar year. Employees who are eligible to participate in a SIMPLE 401(k) plan may not receive any contributions or benefit accruals under any other plans of the employer,” as reported by the IRS.
No other employer contributions can be made to a SIMPLE 401(k) plan, and employees cannot participate in any other retirement plan of the employer. The maximum amount that employees can contribute to their SIMPLE 401(k) accounts is $13,000 in 2019 and $12,500 in 2018.
If the business operates on a calendar year basis, 2018 contributions to a SIMPLE 401(k) account must be made by April 15, 2019. If the business has a tax-filing extension, the deadline is October 15, 2019.
401(k)
Unlike the SIMPLE IRA, which is limited to small businesses, a 401(k) can be setup by public and private companies of any size. Another important difference between these two types of plans is that employees cannot borrow money from their SIMPLE IRA accounts, while they can from 401(k) plans. The same contribution date applies: 401(k) account must be made by April 15, 2019. If the business has a tax-filing extension, the deadline is October 15, 2019.
Company Matching Payments
For a business that operates both its business and its 401(k) plan on a calendar year basis, 2018 matching contributions must be made by April 15, 2019. If the business has a tax-filing extension, the deadline is October 15, 2019. An employer can also make profit sharing contributions at this time.
Joshua Wilson, CPA, PC is a full-service public accounting firm that specializes in accounting, tax preparation, tax planning, & business development for small businesses in Winder, GA and the surrounding areas. Give Joshua a call today to set up a consultation at 770-856-1309 or email him at josh@joshuawilsoncpa.com.