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LegalEagle, LLC
LegalEagle, LLC, Attorney
Category: Tax
Satisfied Customers: 1473
Experience:  Extensive tax and finance background prior to law school. 5-star legal/homework. New tax profile
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I am a small business owner with two emloyees. I have a ...

Customer Question

I am a small business owner with two emloyees. I have a simple-ira plan that I funded for 2006. When I sent my contribution in for 2007, I was told it was too late, I mailed it March 31, 2008. The investment company made it a 2008 contribution. My employees did not participate in the plan at all last year. Can I somehow get my contribution recharacterized to a 2007 contribution?
Submitted: 6 years ago.
Category: Tax
Expert:  LegalEagle, LLC replied 6 years ago.

Unlike a standard IRA that allows contributions through and including April 15th, the simple IRA that you are covered by works more like a 401K. In fact, like you, my Professional Corporation covers me and our staff with what I am sure is a similar plan. I apologize, but there is no way to recharacterize these payments as being 2007 payments. Sorry, it's not how a Simple works.

LegalEagle, LLC, Attorney
Category: Tax
Satisfied Customers: 1473
Experience: Extensive tax and finance background prior to law school. 5-star legal/homework. New tax profile
LegalEagle, LLC and 2 other Tax Specialists are ready to help you
Customer: replied 6 years ago.
To clarify, I am the self employed owner of the simple-ira. Do not receive a paycheck, and as such, thought I would have to my filing deadline to determine business profits and then my contribution, and match, social security.
Expert:  LegalEagle, LLC replied 6 years ago.
Even as self-employed, while the company match can be paid after 12/31, the employee portion must be paid prior to 1/1. The match can be paid later but I am of the opinion that the contribution must be in the calendar year. Let me review my simple regs tonight and, if I can find a loophole that allows you to contribute late, I will post here in the am. Fair enough?
LegalEagle, LLC, Attorney
Category: Tax
Satisfied Customers: 1473
Experience: Extensive tax and finance background prior to law school. 5-star legal/homework. New tax profile
LegalEagle, LLC and 2 other Tax Specialists are ready to help you
Customer: replied 6 years ago.
Reply to LegalEagle, LLC's Post: Very fair, and thanks for the help. Will look for your answer tomorrow.
Expert:  LegalEagle, LLC replied 6 years ago.

I had a chance to review the IRS regs tonight and wanted to post my findings. First, as we both suspected, the employer match can be made as late as the deadline for the self-employed person's tax return. Here's that section. Although I have found support that you must make the employee portion by 1/1, let me look a little further before I close out this question. Here's the pertinent info on the employer under both a match and a salary reduction:

When must an employer make salary reduction contributions under a SIMPLE IRA plan?

The employer must make salary reduction contributions to the financial institution maintaining the SIMPLE IRA no later than the close of the 30-day period following the last day of the month in which amounts would otherwise have been payable to the employee in cash. The Department of Labor has indicated that most SIMPLE IRA plans are also subject to Title I of ERISA; also, under Department of Labor regulations at 29 CFR 2510.3-102, salary reduction contributions to these plans must be made to the SIMPLE IRA as of the earliest date on which the contributions can reasonably be segregated from the employer's general assets, but in no event later than the 30-day deadline described above. These rules also apply in the case of self-employed individuals. Thus, the latest day for the deposit of salary reduction contributions made on behalf of a self-employed individual for a calendar year is 30 days after the end of such year, which is January 30th.



When must an employer make matching and nonelective contributions under a SIMPLE IRA plan?

Matching and nonelective employer contributions must be made to the financial institution maintaining the SIMPLE IRA no later than the due date for filing the employer's income tax return, including extensions, for the taxable year that includes the last day of the calendar year for which the contributions are made.

 

You are sure you have the Simple, not a SEP-IRA, correct? If you have the same Simple I have, the latest possible deadline would be 1/30 for salary deferred contributions. Sorry. Qualified plans and SEP plans allow for tax return date contributions, but Simple's are earlier. See Publication 590 for more information:

http://www.irs.gov/pub/irs-pdf/p560.pdf

 

Customer: replied 6 years ago.
Reply to LegalEagle, LLC's Post: yes, it is a simple-ira.
Expert:  LegalEagle, LLC replied 6 years ago.
Then the provider is correct. Your contribution was required by 1/30 while the match would have been timely for a 2007 match. Sorry that the different rules for the Simple caught you. You would have been timely for all other qualified plans or even a SEP. Thanks for your patience this evening.

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LegalEagle, LLC
LegalEagle, LLC
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Extensive tax and finance background prior to law school. 5-star legal/homework. New tax profile