Separating retirement elections from payroll withholding and plan deposits

A retirement election, a payroll deduction, and a plan deposit are three separate events. The election records the employee's choice, payroll records what was withheld, and the plan's confirmation records what arrived. Before the final payroll, confirm each step with your payroll provider and plan administrator. Do not treat December 31 as one universal deadline for all three.

Give each event its own date and record

For a salary deferral, keep the election and its effective date, the affected pay-period register, and the plan deposit confirmation. These records answer different questions. A signed election does not prove payroll used it. A payroll deduction does not prove the money reached the plan. A bank transfer does not prove the administrator allocated it to the correct employee or contribution type.

A practical reconciliation uses separate columns for the pay date, employee deferral, employer contribution, transmission date, and administrator confirmation. Record unresolved differences instead of changing dates to make the columns agree.

Check elections before the affected compensation is paid

Ask the administrator when an election or change must be effective under your plan, then confirm payroll received the instruction in time. Keep prior versions when an employee changes the amount. Do not assume a year-end journal entry can retroactively create a valid deferral election for compensation already paid.

The payroll review should use the plan's definition of eligible compensation. For an S corporation shareholder who is also a common-law employee, retirement contributions are based on compensation; shareholder distributions are not retirement-plan earned income. The IRS S corporation retirement FAQs explain this distinction.

Separate employee deferrals from employer funding

An employee deferral comes from compensation the employee chose to defer. An employer matching or nonelective contribution is a separate employer contribution. Do not combine both amounts into one unexplained payroll expense or assume both must be funded with every payroll run.

Employer funding deadlines depend on the plan and contribution. For example, IRS Publication 560 generally gives the employer's return due date, including extensions, for profit-sharing contributions, while other plan types have different requirements. It also warns that Department of Labor rules can require earlier deposits of employee deferrals for covered plans. An employer deduction deadline is therefore not a general permission to hold employee deferrals. Use the administrator's confirmed deadline for each category. See IRS Publication 560.

Reconcile the correct totals

Compare payroll's employee-deferral total with the amounts transmitted and credited as employee deferrals. Reconcile employer contributions in their own schedule. Total deposits can include both categories, so comparing that combined number directly with a W-2 employee-deferral box can create a false discrepancy.

If a confirmation is missing, obtain it from the administrator and trace the bank transaction. If an amount was withheld but not transmitted, identify the affected payroll and ask the administrator about the required correction. Keep the original evidence and the correction record together.

Finish with a short exception list

Before the last payroll, list elections awaiting implementation, compensation questions, untransmitted deductions, missing confirmations, and contribution categories with unconfirmed funding dates. Assign a person and next action to each item. This makes the remaining work visible without pretending that every contribution follows the same calendar.

For the related wage and reporting work, read what an S-corp owner should finish on payroll before December 31. Contact KDM for help reconciling the payroll and bookkeeping records with information from your plan administrator.

Further reading

For related context, read Health Insurance Options for S-Corp Owners and Their Employees.

Sources

• IRS: S corporation compensation and insurance