When Do 401k Contributions Need to Be Made?

A 401(k) plan is a widely used retirement savings vehicle, offering tax advantages for both employees and employers. These plans enable individuals to defer income into investments, often supplemented by employer contributions. Effectively managing a 401(k) plan requires understanding the deadlines for both employee and employer contributions, as timely deposits are essential for compliance and maximizing retirement savings.

Employee Contribution Timelines

Employee salary deferrals and loan repayments must be remitted to the 401(k) plan within specific timeframes. The Department of Labor (DOL) mandates that these contributions be deposited as soon as they can reasonably be segregated from the employer’s general assets. While the maximum deadline for depositing these funds is the 15th business day of the month following the month in which they were withheld, employers are generally expected to remit them much sooner if administratively feasible. The DOL often considers deposits made within three to five business days after payroll as timely.

For smaller plans (fewer than 100 participants), a safe harbor rule applies. Employee contributions are considered timely if deposited within seven business days of withholding. This safe harbor offers a clear guideline for small employers, simplifying compliance. This rule applies to both salary deferrals and participant loan repayments.

Employer Contribution Timelines

Employer contributions, such as matching and profit-sharing, generally have deadlines tied to the employer’s tax filing schedule. To claim a tax deduction for a plan year, funds must be deposited by the federal income tax return due date, including any extensions. For example, S corporations and partnerships commonly have a March 15 deadline, extendable to September 15. C corporations, sole proprietorships, and single-member LLCs usually have an April 15 deadline, extendable to October 15.

Employer contributions are deductible on the business’s federal tax return, subject to certain limitations. The maximum deductible amount for all employer contributions, including matching and profit-sharing, is generally 25% of total compensation paid to eligible employees. Unlike employee deferrals, employer contributions are not considered plan assets until deposited into the plan.

If a business files its tax return early, it still has until the original or extended due date to make the contributions and claim the deduction for the prior tax year. This flexibility allows businesses to manage cash flow while still benefiting from the tax deductibility of their contributions. Certain safe harbor contributions must be deposited by the last day of the plan year following the year in which they were earned, or quarterly for per-payroll matches.

Importance of Adhering to Deadlines

Meeting 401(k) contribution deadlines is important for compliance and the financial well-being of plan participants. Failure to timely remit employee salary deferrals is considered a “prohibited transaction” under the Employee Retirement Income Security Act (ERISA). Employers are required to “make participants whole” by contributing any lost earnings. A 15% excise tax on these lost earnings must be paid to the IRS and reported on Form 5330.

Late employee contributions must be reported on the plan’s annual Form 5500. Repeated delays can lead to plan disqualification by the IRS. The Department of Labor offers a Voluntary Fiduciary Correction Program (VFCP) to self-correct errors, including late employee contributions, which can mitigate penalties.

Missing the tax filing deadline for employer contributions, even with extensions, means they cannot be deducted for the intended tax year. While deductible later, this affects current tax liability. Late employer contributions do not incur prohibited transaction penalties like employee deferrals, but can result in lost investment earnings for participants. The IRS provides the Employee Plans Compliance Resolution System (EPCRS) for correcting various plan errors.