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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12667
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Employee deferral on Simple IRA not done timely. Is there a

Customer Question

Employee deferral on Simple IRA not done timely. Is there a statute of limitation in the review process?
What interest percent is fair to repair damage>
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi,

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There is a program called VCP that allows you to make th corrections without losing qualified plan statue ...

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BUT, you may be within the time period where you can self correct without having to go through the formal process.

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See this from IRS

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Is making a VCP submission to the IRS under EPCRS the only way that I can restore my plan’s qualified status?

No, in some cases you can restore your plan's qualified status by self-correcting the failure before the last day of the second plan year following the plan year for which the failure occurred. See the Self-Correction Program FAQs.

Example: XYZ Company established a money purchase pension plan in 2004 and the sponsor received a favorable determination letter. During 2014, while doing a self-audit of the operation of the plan for the 2012 plan year, the plan administrator discovered that, despite the practices and procedures established by the XYZ Company with respect to the plan, XYZ Company failed to make the required contribution to the plan. XYZ Company is a calendar year taxpayer and the due date of its tax return is March 15th. XYZ Company filed a six month extension for this return. The due date of the contribution for the 2012 plan year was September 15, 2013. XYZ Company did not make this contribution at this time. Upon discovering the error, XYZ Company made the required contribution by the end of the 2014 Plan Year. The contribution was credited with earnings at a rate appropriate for the plan from the date the contribution should have been made to the date of correction. By making this corrective contribution before the end of the 2014 plan year, the plan met the requirements of self-correction and would retain its qualified status.

Customer: replied 1 year ago.
Deferrals were sent in for the year at the end of year vs. the month of occurance. It is a timely error. We are being asked to. Go back three years and see if any other not timely deposits. There are. I had in my mind that deferral has to be deposited by end of each year. My mistake and we want to make it right. What % could we compensate for employees deferrals not being deposited at the right time?
Expert:  Lane replied 1 year ago.

Bot***** *****ne, you must bring the accounts back to where they would have been, had the contributions been done in a timely fashion ... using the investment choices made by the participants.

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This may be a complicated task ... Many fund companies a financial advisers have access to what's called " hypothetical " software that can let you recreate the deposits over the time fram that wa missed ... In order to see where you should be.

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You would still, technically, owe the penalties, but this might allow for abate,net if you self-report ... And of course you could always "cross your fingers

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Expert:  Lane replied 1 year ago.

Sorry ... looks like our posts crossed there ... my laxst answe was done without seeing your last post ... just a sec

Expert:  Lane replied 1 year ago.

From here: https://www.irs.gov/Retirement-Plans/SIMPLE-IRA-Plan-Fix-It-Guide

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7) You didn’t timely deposit employee elective deferrals.

Compare the dates on which you withheld the elective deferral contributions and the dates on which you contributed them to the employees’ SIMPLE IRAs.

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Make corrective contributions for each employee equal to the missed earnings for the period the deposits were late.

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Establish procedures to ensure that the employees’ elective deferrals are made per the employees’ elections and are timely deposited.

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Expert:  Lane replied 1 year ago.

Here's an example... enter dates and the amounts to see where you would have been

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http://www.investmentview.com/investmentviewpresentations.asp

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As you can see on page 6 of this report, you can see the values for each date ... and these can be run to show those contributions goin in on the dates that you should have.

Expert:  Lane replied 1 year ago.

Did you see my answer?

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I hold J.D. (Duris Doctorate -a Doctoral degree in the law), MBA (Finance & Tax specialization), a BBA from Mercer University's Stetson School of Business & Economics, as well as CFP and CRPS (Chartered Retirement Plans Specialist) designations

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I can help you with the calculations

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Let me know

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Lane

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