Late 401(k) deposits: what counts as late and how to fix it
Money withheld from employees' paychecks for the 401(k) belongs to them, and the Department of Labor expects it in the plan quickly. Late deposits are one of the most common problems in small plans, and they are fixable. Here is what counts as late and how to correct it. Worried about your deposits? Request a plan review.
What counts as late
- The rule: employee deferrals and loan repayments must be deposited as soon as they can reasonably be separated from the business's own money.
- Small plan safe harbor: for plans with fewer than 100 participants, deposits made within 7 business days of payday are treated as on time.
- The outer limit: the 15th business day of the month after payday is a maximum, not a target. If you usually deposit in two days, taking ten can still be late.
Why it matters
A late deposit is treated as the business using plan money, a prohibited transaction under ERISA. Late deposits must be reported on the plan's Form 5500, which is public, and they can lead to an excise tax on the lost interest. They are also one of the first things auditors and the Department of Labor look for.
How to fix a late deposit
- Deposit the missing contributions as soon as you find them.
- Calculate lost earnings from the date the money was withheld to the date it was deposited. The Department of Labor's online VFCP calculator is the standard tool.
- Deposit the lost earnings into the affected employees' accounts.
- Choose a correction path:
- Self-correction (since March 2025): if the lost earnings are $1,000 or less for each pay period and the contributions are deposited within 180 days of being withheld, you can self-correct, file a notice with the Department of Labor online and keep the required records.
- Full VFCP filing: for larger or older problems, apply to the Department of Labor's Voluntary Fiduciary Correction Program.
- Handle the excise tax: correcting through the program can provide relief from the excise tax, in some cases by paying the equivalent amount into the plan instead; otherwise it is reported and paid on IRS Form 5330.
- Report it on the Form 5500 for the year.
How to prevent it
- Use a payroll provider that sends deferrals to the recordkeeper automatically each payroll.
- Name one person responsible for confirming each deposit, with a backup for vacations.
- Review deposit dates at least quarterly as part of your fiduciary process.
Common questions
How fast must 401(k) contributions be deposited?
As soon as they can reasonably be separated from the business's assets. For plans with fewer than 100 participants, deposits within 7 business days of payday are treated as timely. The 15th business day of the following month is only an outer limit.
Can I fix late 401(k) deposits myself?
Often, yes. Since March 2025, if lost earnings are $1,000 or less per pay period and the contributions are deposited within 180 days of being withheld, a plan sponsor can self-correct under the Department of Labor's program and file a notice online.
Do late deposits have to be reported?
Yes. Late deposits are reported on the plan's Form 5500, which is public, even when they have been corrected.
Want a second look at your plan’s deposits?
We’ll review deposit timing and help you correct any gaps with your provider. The initial plan review is complimentary, and we aim to reply within one business day.
Request a plan reviewGeneral educational information as of September 27, 2026; limits and rules change. Not individualized investment, tax or legal advice. Consult your tax adviser about your situation.