You can avoid penalties and excise taxes if you make deposits of deferrals and loan payments that are received by the retirement plan within seven (7) business days of the payroll date.

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Many plan sponsors mistakenly believe that deferrals and loan payments which are remitted by the middle of the next month are timely. That’s because the rules say that participant contributions (and loan payments) are due as of the earliest date on which such contributions can reasonably be segregated from the employer’s general assets. The maximum time period is described as the 15th business day of the month following the month in which such amounts would otherwise have been payable to the participant in cash.
     However, the Department of Labor emphasizes that the “real” deadline is the earliest date on which contributions can be segregated. To determine whether the Plan Sponsor is depositing on the earliest date, DOL often looks at the timing of payroll tax deposits, reasoning that if withheld taxes can be segregated and deposited within a certain number of days then it should be possible to segregate and deposit participant contributions and loan payments within the same time frame.
     Department of Labor has established a “safe harbor” rule for small plans (less than 100 participants) which says participant contributions and loan payments that are deposited by the 7th business day following the payroll are deemed to be segregated from employer’s general assets and will satisfy the requirement to deposit participant contributions by the earliest date.
     If participant contributions are deposited late, this may be deemed a prohibited transaction. Normally, the Plan Sponsor must pay an excise tax and complete Form 5330.