Year End Deadline for Participant Contribution to Company Sponsored 401k Plan?

Question

For tax purposes, what is the deadline for a year end participant contribution to be deposited in a company 401k plan?

Also, what determines the date that a 401k contribution made by the participant and deducted from my bonus check was "effective" for tax purposes? Is it:

1. 12/28/06 which is the date that the bonus check was issued (net of the 401k contribution I requested to be made),

2. 1/3/07 which is the date when my employer actually wrote the check to make the contribution, or

3. Some other date?

Answer 1

The 401K contribution will reduce box 1 of your 2006 W-2. It is a 2006 contribution since it was withheld from your 2006 income.
Your employer actually has until the 15th business day of January 2007 to make the deposit into your 401K investment account.

Answer 2

Answer is #1. The date to use is the date that the funds upon which the 401k was taken was made available to you. In most cases that's the check date. In your case it's that's 12/28/2006. That bonus should be included in your 2006 income and if it is, the 401k will be deducted from your 2006 income.

And the deadline is "as soon as administratively possible after the payroll but no more than 15 days following the end of the month in which the payroll occurred." While that's the rule...that's just a maximum. But, the Department of Labor is saying that this should be no more than 5 days. And they are the ones that count. Their thinking is that if you can write the check to the employees then you should be able to write the check for the 401k contribution. And in most cases, they're right.

Answer 3

The actual date of the payroll. Your check date may vary a day or two, but the payroll date is the one to use. Your employer has a few days to make your contribution, but the 401K provider gets an accounting of the deduction and applies it accordingly to the correct payroll date.

Under most plans, your are eligible for a contribution and match in every year (or part of year) that you work following your eligibility and entry into the plan. In other words, you will get the match and contribution for 2006 even if you quit on 12/31/2006. If you work a few days into 2007, you will be eligible for that year too.