Employee contribution deadline

Payroll deduction makes it easy for employees to save for retirement in a 401(k). Each eligible employee is given the choice of how much of their compensation to contribute to the plan.

In some plans, employees who do not choose an amount will be automatically enrolled in the plan. Once the employee has made a contribution election or is automatically enrolled, a portion of their salary is deducted from each paycheck and contributed to their 401(k) account.

The employer must deposit the employee contribution amounts into the 401(k) as soon as possible after a contribution (or loan payment) is deducted from the employee’s paycheck. If an employer typically makes deposits within five business days of the payroll date, for example, that is the time frame they will be measured against for all deferral deposits. The latest deposits can be made is the 15th business day of the month after the contribution is deducted from the employee’s paycheck, but most employers will have a much shorter deposit deadline.

Safe Harbor for small business – small businesses (those with fewer than 100 employees) are deemed to meet the as soon as possible standard if they deposit contributions within seven days following the payroll date.

Employers who do not deposit employee contributions promptly may be subject to IRS and Department of Labor (DOL) penalties. Employers that file a Form 5500 Annual Return/Report of Employee Benefit Plan, must report whether they made any late deposits during the year.

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Employer contribution deadline

Many employers help their employees build retirement savings by matching a portion of the contributions made by employees. Matching contributions can provide employees a strong incentive to save through the 401(k) plan rather than forego leaving free money.

Some employers contribute the matching dollars each payroll period along with the employees’ salary deferrals. Other employers make the full matching contributions in one payment. To take a deduction, employers must deposit matching contributions into the plan no later than the business’s federal income tax return due date for that year. If the business has an extension to file the tax return, the contribution may be made up until the extended deadline. For example, for a business that operates both its business and its 401(k) plan on a calendar year basis, 2023 matching contributions must be made by April 15, 2024. If the business has a tax-filing extension, the deadline is October 15, 2024.

Some employers also make profit-sharing contributions. These contributions have the same deadline as matching contributions. Employer matching and profit-sharing contributions combined are limited to 25% of employee compensation.

401(k) plan establishment deadline

Like other types of retirement plans, to establish a 401(k) plan for a tax year, the business owner must sign a plan document by the last day of the business’s tax year to contribute for that year (e.g., December 31 for a calendar-year business).

If a business has employees who want to make 401(k) salary deferrals, however, the 401(k) plan will need to be established earlier to provide a significant benefit for that year. 401(k) salary deferrals can only be made from compensation that is received after the plan is adopted. So if an employer is establishing a 401(k) plan toward the end of the year, employees may only contribute compensation received during the remaining payroll periods after the plan is established. This may prevent them from making significant contributions for that year.

Solo 401(k) contribution deadline

A self-employed business owner without employees may be able to make significant contributions even if the 401(k) plan is established later in the year. Many self-employed individuals, such as sole proprietorships and partnerships, determine their compensation at the end of the year and don’t receive a regular paycheck.

If a self-employed individual wants to make salary deferral contributions to a solo 401(k), they must make an election by the end of the plan year (e.g., December 31 for a calendar-year plan). As long as they make the election to defer by the end of the plan year, they have until the business’s federal income tax return due date, including extensions, to make the salary deferral contribution into the plan.

If the business is incorporated and the owner receives a regular paycheck that qualifies as W-2 wages, they must follow the seven-business-day deposit guideline (explained above) for each paycheck if deferrals are withheld.

If a self-employed individual wants to make a profit-sharing contribution (in addition to or in lieu of salary deferrals), the deadline to contribute is the business’s federal income tax return due date, including extensions, for the year for which they want to contribute.

If plan contributions meant for a 2023 calendar-year plan are made after the end of 2024, business owners must meet the following requirements to apply contributions to the 2023 plan year.

  • The plan was established by December 31, 2023
  • Contributions are made by April 15, 2024 (October 15, 2024, if the business has a tax extension)
  • The plan treats the contributions as though it had received them on December 31, 2023
  • The business takes a deduction for the contributions on the 2023 tax return