Deadline to deposit employee contributions
The employee/elective deferral contribution should be deposited into the Solo 401k within 7 business days of processing. If the employee contribution is made within that time frame, it is still counted as timely under the Department of Labor's safe harbor rule for employee contributions.
If the 7-business day deadline is not met, the employee contribution may not be counted as timely. The maximum deadline to deposit the employee contribution is the 15th business day of the following month. Although it is possible to deposit the contribution by that date, it does not fall under the Department of Labor’s safe harbor rules.
If you exceed the above deadline, this may constitute an operational mistake and potentially, a prohibited transaction.
Your plan documents note the following language:
Salary deferrals are deposited in the trust as soon as reasonably possible, following guidelines issued by the Department of Labor. (Summary Plan Description)
Elective Deferrals will be remitted by the Employer to the Trustee or custodian on the earliest date that they can reasonably be segregated from the Employer's assets, but in no event later than the 15th business day of the month following the month in which the Participant contributions are withheld or received by the Employer, unless under the regulations an extension of up to 10 business days is granted by the Secretary of Labor with respect to Elective Deferrals received or withheld in a single month.
In the case of a small plan (less than 100) participants the Department of Labor has provided a safe harbor option for depositing Participant contributions within 7 business days after the money is received or withheld from payroll. This seven day rule was finalized as of January 14, 2010. (Defined Contribution Plan Document)
Not following the above language is considered an operational mistake, and it may be possible to correct the operational mistake under the IRS's Employee Plans Compliance Resolution System (EPCRS).
Not following the above language may also give rise to a prohibited transaction, which cannot be corrected under EPCRS. Instead, it may be possible to correct the prohibited transaction under the DOL’s Voluntary Fiduciary Correction Program (VFCP).
For more information on these programs, visit the IRS’s pages: