After Death 401k Contribution for Single Only 401k - Spidell

After Death 401k Contribution for Single Only 401k

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Message Board After Death 401k Contribution for Single Only 401k

This topic contains 3 replies, has 2 voices, and was last updated by Library Library 3 weeks, 1 day ago.

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  • #182658
    Michael Combs
    Participant

    Can an after death contribution be made to a decedent’s self only 401k plan? Taxpayer was self employed and maintained a self only (1 person) 401k plan. Taxpayer normally made the maximum participant deferral contribution into the plan at the end of the tax year. Taxpayer passed away Sept ’19 before a participant deferral contribution was made for 2019. Can a 2019 contribution to the 401k be made post the taxpayer’s death?

  • #182663
    Library Library
    Participant

    Hi Michael,

    If a retirement plan contribution was already made for a decedent in the year of death, it would be allowable, however a contribution post death is not.  See below for a PLR related to a post death IRA contribution:

    There is no official guidance on whether an IRA contribution can be made to a decedent’s IRA (that is, a contribution being made to an individual’s IRA after the individual dies). The only indication of the IRS’ position on this matter is private letter ruling (PLR) 8439066, in which the IRS ruled that the decedent’s estate could not contribute to the decedent’s IRA for the year of death, <u>if the contribution is being made after the individual died.</u> Obviously, had the IRA owner contributed the amount before death, it would have been OK .
    <div align=”justify”>
    The question then becomes, would the contribution be allowed for the previous tax-year if the individual died after the end of the year? Say- January of this year? It appears not. In the same PLR, the IRS stated that “Since the taxpayer is deceased, the contribution made by the decedent’s estate would not be a contribution for retirement purposes”, which suggests that any contribution after death is not allowed.  The IRS goes on to say ( in the PLR) that  “Section 1.408-2(a) of the Income Tax Regulations specifies the person who may establish and maintain an IRA to include an individual, an employer, or an employee association. The regulations do not provide that the decedent’s personal representatives, the decedent’s estate, or beneficiaries of the decedent’s estate can establish or maintain and IRA on behalf of an individual. This is because <u>the primary purpose of the IRA is for retirement</u>.”</div>
    <div align=”justify”>In sum, the IRS is saying that a deceased person has no need for retirement funds, therefore making additions in the form of contributions to a deceased individual’s IRA is not permitted. They also explained that making such a contribution would create an “excess IRA contribution”, subject to a 6% penalty if not removed from the IRA by the applicable deadline.</div>
    <div align=”justify”>A PLR cannot be cited as precedence or legal reference, but gives a good idea of how the IRS would treat a case with a similar fact pattern.</div>

  • #182675
    Michael Combs
    Participant

    Can Sept ’19 salary deferral be contributed to the 401k? The self only participant has Sept ’19 earned income which will be paid at the end of the month. It normally would not be contributed until the following month.

  • #182700
    Library Library
    Participant

    I would said no.  I don’t see a solo 401K any differently than any other retiement account.  Once a person has died, there can be no contributions made after the date of death.  A good example would be a death in 2019 with a 2018 extended tax return still not yet filed.  If a retirement plan contribution hasn’t been made for 2018 pre-death, it’s too late now.  That’s a detriment to putting off funding until the last possible moment.  Even if the business income isn’t finalized until the last moment, it’s a good idea for taxpayers to fund the known amount, and just top off the account with the difference, when the final number is determined.