401(k) Contribution Deadlines – You Don’t Want to Miss Them!

All 401(k) plan contributions have deposit deadlines – and it’s up to 401(k) fiduciaries to meet them. Yet, many employers are unclear about the deadlines applicable to their 401(k) plan. That confusion can easily lead to late contributions. When that happens, there are always consequences for the employer. They range from mild (losing a tax deduction, making participants whole for lost earnings) to severe (plan disqualification, IRS and/or civil penalties). Fortunately, these consequences are easily avoided with some basic education.

Below is a summary of the deposit deadlines applicable to all 401(k) plan contributions – including how to correct late contributions. If you’re a 401(k) fiduciary, you can use this information to understand your plan’s contribution deadlines – and what you need to do in case you miss one.

Participant contribution deadlines

Participant contributions include pre-tax and Roth salary deferrals, voluntary after-tax contributions, and participant loan repayments. All participant contributions are subject to the same deadline requirements.

Deadline for deposit

Under Department of Labor (DOL) rules, participant contributions must be deposited as of the earliest date the contributions could reasonably be segregated from the employer's general assets, but in no event later than the 15th business day of the month following the month in which the contributions were withheld from wages.

Small employers (100 or less employees) are subject to a safe harbor rule. They can automatically satisfy the DOL deadline requirement when participant contributions are deposited no later than the 7th business day following the date they were withheld from wages.

Fixing late deposits

If you deposit participant contributions late, the correction involves the funding of lost earnings to affected participants for the period that contributions were late. You have the choice to formally correct the issue using the DOL’s Voluntary Fiduciary Compliance Program (VFCP) or self-correct. If you self-correct, you must also pay a 15% excise tax to the IRS. The tax is based on lost earnings amount, so it’s often not much. A Form 5330 is filed to pay the tax.

In my experience, most small employers choose self-correction to avoid the time and expense of the VFCP process – which typically outweighs the IRS excise tax amount by a lot. However, you should understand the risks associated with forgoing the formal VFCP process:

• Once the VFCP process is successfully completed, the DOL will issue a “no action” letter – which formally settles the matter. If late deposits are self-corrected, the DOL can investigate the matter in an audit.
• When VFCP is not used, you can’t rely upon the DOL online calculator for calculating lost earnings. When this is the case, the general practice is to calculate lost earnings based on the greater of:
  • the plan’s actual rate of return, or
  • the IRS §6621 underpayment rate (essentially the same rate used by the DOL online calculator)
• You must report late participant contribution deposits on your 401(k) plan’s Form 5500. With no “no action” letter, you can’t be sure this admission won’t open the door to a DOL audit.

If a late deposit issue is not corrected properly, the DOL can sue to protect the interests of plan participants.

Employer contribution deadlines

Employer matching or nonelective (a.k.a., profit sharing) contributions are subject to two annual deadlines – one for deductibility purposes and another for “annual additions” purposes. These deadlines depend upon your company’s tax status and the type of contribution to be made.

Deductibility deadline

To deduct the employer contributions made to your 401(k) plan for a given year, you must deposit them no later than the due date (including extensions) of your federal tax return. Below is a summary of the possible deadlines for a calendar year tax filer:

Example - ABC S-Corp is calendar year tax filer. Their 401(k) plan operates on a calendar plan year. Assuming no filing extension, ABC must deposit their 2022 employer contribution no later than March 15, 2023 to deduct the contribution on their 2022 tax return. If an extension is filed, the deposit can be made up to September 15th.

Annual additions deadline

The contributions allocated to a 401(k) participant account each “limitation year” are considered “annual additions” under Internal Revenue Code (IRC) section 415. For most 401(k) plans, the limitation year is the same as the plan year. Each limitation year, annual additions are capped by the 415 limit ($69,000 for 2024 + $7,500 “catch-up” for 2024).

The annual additions deadline is based on the type of contribution being made.

*Safe harbor matching contributions are subject to an additional deadline if they are calculated on a per-payroll basis and not “trued-up” at year-end. These periodic matches must be deposited no later than the plan year quarter following the plan year quarter in which the match was earned.

Fixing late deposits

If required employer contributions (i.e., contributions necessary to meet safe harbor 401(k) requirements or correct failed plan testing) are not allocated to participants by their annual additions deadline, the issue must be corrected in accordance with the IRS Employee Plans Compliance Resolution System (EPCRS) – because the issue is considered a plan qualification failure. “Insignificant” failures (as defined by EPCRS) can be self-corrected, while “significant” failures must be formally corrected under the IRS Voluntary Compliance Program (VCP).

In general, correction will involve the funding of lost earnings to affected participants for the period that contributions were late. If late required contributions are not corrected properly, the consequences can be severe – including significant IRS penalties or plan disqualification.

Staying out of trouble is easy!

For the most part, the deadlines for making participant and employer contributions to a 401(k) plan are straightforward – things just get hairy once a deadline is missed and a correction is necessary.

Have additional questions about the contribution deadlines applicable to your 401(k) plan? Ask your 401(k) provider. An experienced provider should be able to give you a quick answer – making it easy for you to stay out of trouble.