Profit-Sharing Contribution Deadlines: What to Review Before December 31

December 31 is approaching, and you’re considering a profit-sharing contribution for your employees. Do you need to decide on the amount before year-end? Does the money have to be deposited by then? What if your accountant won’t have the final numbers until next spring?

These are reasonable questions. You may have more time than you think, but the answer depends on your plan’s provisions and your company’s tax situation. Before setting a date or committing to an amount, talk with your third-party administrator (TPA) and CPA about what your business needs to do—and when.

Start with what your plan allows

A profit-sharing contribution is an employer contribution that is generally separate from employees’ salary deferrals. Depending on the plan document, the employer may have discretion over whether to contribute and how much.

Despite the name, a business does not necessarily need an accounting profit to make a profit-sharing contribution. The plan’s written provisions govern how the contribution works, including who qualifies and how the money is allocated.

Ask your TPA to review those provisions with you. Which employees are eligible? What compensation counts? Must employees meet an hours requirement or be employed on the last day of the plan year?

Those details can affect the cost. If you have a particular contribution in mind, have the administrator calculate it under your current plan before you commit.

There may be more than one deadline

When someone says a contribution can wait until after December 31, ask which deadline they mean.

The date you approve a contribution may differ from the date you fund it. Your administrator will also need time to collect payroll information, calculate allocations, and send the results for review. Separately, your company’s tax calendar affects the deadline for claiming a deduction.

Your CPA should confirm the tax-related deadline for your business, including the effect of any filing extension. Your TPA should explain the calculation and funding schedule, along with any plan requirements.

Put those dates on one calendar and assign someone to each step. That gives everyone a shared schedule and helps prevent a missed handoff between payroll, accounting, and the administrator.

Get an estimate before committing to an amount

You don’t have to wait for the last payroll of the year to begin planning. A preliminary calculation can help you assess the potential contribution and how much cash to set aside.

Just be clear about what the estimate includes. Final compensation, new hires, rehires, ownership changes, and employee eligibility can change the result. An estimate based on October payroll may look different once the full year’s records are available.

Ask your administrator to explain the assumptions and identify any missing information. That will help you understand how much the estimate could change before you approve the final contribution.

Keep a clear record of the decision

Even when a contribution is discretionary, someone must have authority to approve it, and the administrator needs clear instructions.

Keep a written record of the approval using your company’s established process. It should identify the plan year, the contribution being authorized, and any remaining steps. Retain the final allocation report and funding confirmation with the plan records.

If the approved amount changes after the final calculations, document that change as well. A clear file will save time when your accountant, administrator, or next year’s staff needs to understand what happened.

Give your team time to finish the work

Late December is busy for everyone involved. Payroll is completing its final runs, finance is closing the books, and your TPA is handling year-end requests from other employers.

Starting in November gives you time to find missing records, review estimates, and resolve questions before they become urgent.

Ask your administrator what information is needed and when it is due. That might include a complete employee census, full-year compensation records, or updated owner and officer information. Also confirm who will arrange the deposit and who will verify receipt.

Five steps to take before year-end

1. Review your plan’s provisions. Confirm eligibility, compensation definitions, allocation rules, and any conditions employees must meet.

2. Confirm the deadlines. Ask your CPA about deduction timing and your TPA about the plan’s administrative and funding requirements.

3. Request an estimate. Use current payroll and employee information to assess the potential cost, with the assumptions clearly identified.

4. Record the approval. Follow your company’s approval process and give the administrator clear instructions.

5. Check the final results. Review the allocation report, confirm the deposit, and retain the supporting records.

You may not need to complete every step by December 31. You should, however, know what remains, who is responsible, and when each step is due. A conversation now can help you decide on a contribution with a clearer understanding of the cost and schedule.

Have questions about your profit-sharing contribution timeline?

Duncan Williams Asset Management can help you organize the questions to review with your CPA and plan administrator. Call our team at (901) 435.4250 to discuss your retirement plan.

Sources & further reading

•    Internal Revenue Service — 401(k) Plan Overview: https://www.irs.gov/retirement-plans/plan-sponsor/401k-plan-overview

•    Internal Revenue Service — Operating a 401(k) Plan: https://www.irs.gov/retirement-plans/operating-a-401k-plan

•    Internal Revenue Service — A Plan Sponsor's Responsibilities: https://www.irs.gov/retirement-plans/plan-sponsor/a-plan-sponsors-responsibilities

•    Internal Revenue Service — Maintaining Your Retirement Plan Records: https://www.irs.gov/retirement-plans/maintaining-your-retirement-plan-records

•    U.S. Department of Labor — Retirement Responsibilities for Employers: https://www.dol.gov/agencies/ebsa/employers-and-advisers/small-business-owners/understanding-your-responsibilities