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How Fast Does a Company Have to Deposit Your 401(k) Contributions?

By Alison Southwick and Robert Brokamp, CFP(R) - Nov 10, 2019 at 9:50PM

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Short answer: ASAP.

The more you learn about personal finance, the more complicated your questions are likely to get. But never fear: Hosts Robert Brokamp and Alison Southwick named their podcast Motley Fool Answers for a reason, and the Oct. 29 episode -- the monthly mailbag show -- the co-hosts will tackle a whole bunch of money conundrums with a bit of help from Motley Fool Wealth Management Director of Financial Planning Megan Brinsfield, CPA, CFP, and all-around fine human being.

In this segment, they consider a bit of minutiae around employer-sponsored retirement accounts -- but it's one that will matter to anyone who has one. How long does an employer have to deposit the money that it's withholding from your paycheck into your retirement account? Well, there's the best-practices answer and then there's the hard deadline. But more important is what it usually says about a company that's playing fast and loose with either one.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Oct. 29, 2019.

Alison Southwick: The next question comes from Nick. "How long does my employer have to deposit my money that is being withheld from my paycheck into my retirement account?"

Robert Brokamp: The quick answer is as soon as possible. There is this other thing that's basically like the absolute drop-dead deadline which can be no later than the 15th business day in the following month in which you receive the money, but you should not be doing that. Every company takes the money from your paycheck. They should be getting it into your 401(k) within one or two business days. 

The reason I chose this question is there have been times where the businesses are hurting for cash...

Southwick: I was going to say. It sounds like shenanigans.

Brokamp: Yes, so they hold onto it for as long as possible. This happened to the husband of an employee, here, at The Motley Fool. 

Southwick: No way!

Brokamp: The money was not getting deposited into the 401(k), so it is something to keep an eye on, because if they're strapped for cash, they're going to do everything they can to stay afloat.

Megan Brinsfield: An interesting piece of my professional history is that when I started in accounting, auditing 401(k) plans was like the stuff that interns get to do. I was auditing 401(k) plans for multiple summers in a row, and this is the kind of stuff that we have to check. We had to take a sample of the employees and look at how much match they had elected and make sure that that got into the plan and that the appropriate match formula was used. 

And my claim to fame as an intern was I found an error in an employer match calculation and I just thought it was like the greatest thing. And everyone just groaned, because they were like, "This means that we need to reallocate two cents to every employee." 

And I was like, "But it was wrong!" But in any case, one of the things that we look for is whether the companies are contributing their match in a timely manner. And back when I was doing it, the rule was something vague like, "15 business days following the time when the assets are reasonably segregable from ongoing cash flows." 

The company that I worked for used to wait until the end of the year to make a one-time deposit and you compare that to working here, at The Fool, where our match is made every paycheck. That is more of an administrative burden. We should all go by and like high-five payroll for doing that for us because legally they really don't have to. They're held to a little bit more liberal standard in terms of when the match is made and I think we all know the earlier you can be invested, the better. So high-five for Fool payroll here!

Brokamp: Thanks Fool!

Southwick: Yet again. Yet again.

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