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Maximum Pension Plan Contributions (Cash Balance Plan & SEP-IRA)
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Alan
Jun 14, 2016, 5:56:03 PM6/14/16
to
We are dealing with a QPSC (qualified professional service corporation)
aka in the code as a PSC (personal service corporation). It is a one
person (age 65) C Corporation with an individual marginal tax rate of
~50% combined federal/state. It maintains a SEP-IRA for its one
employee. SEP-IRA contributions are maxed out to $59,000 ($53,000 +
$6,000 catchup).
I know a corporation can have a defined benefit plan (e.g., cash balance
plan) and a 401(k) plan for its employees. A 65 year old individual is
allowed to contribute $245,045 to a cash balance plan in 2016. That same
individual is allowed to contribute $24,000 ($18000 + $6000 catch-up) to
a 401K (defined contribution plan). That comes to a total of $269,045 of
sheltered income. It is my understanding (I could be wrong) that the
401K plan can have a profit sharing component that can take the total
401K contribution to $59,000 ($18,000 + $6000 + $35,000). That would
make the total contribution for both plans $304,045 of sheltered income.
Can the corporation just keep the SEP-IRA with its $59K contribution or
does it have to switch to a 401(k) with profit sharing?
--
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aka in the code as a PSC (personal service corporation). It is a one
person (age 65) C Corporation with an individual marginal tax rate of
~50% combined federal/state. It maintains a SEP-IRA for its one
employee. SEP-IRA contributions are maxed out to $59,000 ($53,000 +
$6,000 catchup).
I know a corporation can have a defined benefit plan (e.g., cash balance
plan) and a 401(k) plan for its employees. A 65 year old individual is
allowed to contribute $245,045 to a cash balance plan in 2016. That same
individual is allowed to contribute $24,000 ($18000 + $6000 catch-up) to
a 401K (defined contribution plan). That comes to a total of $269,045 of
sheltered income. It is my understanding (I could be wrong) that the
401K plan can have a profit sharing component that can take the total
401K contribution to $59,000 ($18,000 + $6000 + $35,000). That would
make the total contribution for both plans $304,045 of sheltered income.
Can the corporation just keep the SEP-IRA with its $59K contribution or
does it have to switch to a 401(k) with profit sharing?
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
Alan
Jun 14, 2016, 6:46:32 PM6/14/16
to
On 6/14/16 2:51 PM, Alan wrote:
> We are dealing with a QPSC (qualified professional service corporation)
> aka in the code as a PSC (personal service corporation). It is a one
> person (age 65) C Corporation with an individual marginal tax rate of
> ~50% combined federal/state. It maintains a SEP-IRA for its one
> employee. SEP-IRA contributions are maxed out to $59,000 ($53,000 +
> $6,000 catchup).
>
> I know a corporation can have a defined benefit plan (e.g., cash balance
> plan) and a 401(k) plan for its employees. A 65 year old individual is
> allowed to contribute $245,045 to a cash balance plan in 2016. That same
> individual is allowed to contribute $24,000 ($18000 + $6000 catch-up) to
> a 401K (defined contribution plan). That comes to a total of $269,045 of
> sheltered income. It is my understanding (I could be wrong) that the
> 401K plan can have a profit sharing component that can take the total
> 401K contribution to $59,000 ($18,000 + $6000 + $35,000). That would
> make the total contribution for both plans $304,045 of sheltered income.
>
> Can the corporation just keep the SEP-IRA with its $59K contribution or
> does it have to switch to a 401(k) with profit sharing?
>
SEP-IRA contributions are currently maxed out at $53,000, not $59,000.
> We are dealing with a QPSC (qualified professional service corporation)
> aka in the code as a PSC (personal service corporation). It is a one
> person (age 65) C Corporation with an individual marginal tax rate of
> ~50% combined federal/state. It maintains a SEP-IRA for its one
> employee. SEP-IRA contributions are maxed out to $59,000 ($53,000 +
> $6,000 catchup).
>
> I know a corporation can have a defined benefit plan (e.g., cash balance
> plan) and a 401(k) plan for its employees. A 65 year old individual is
> allowed to contribute $245,045 to a cash balance plan in 2016. That same
> individual is allowed to contribute $24,000 ($18000 + $6000 catch-up) to
> a 401K (defined contribution plan). That comes to a total of $269,045 of
> sheltered income. It is my understanding (I could be wrong) that the
> 401K plan can have a profit sharing component that can take the total
> 401K contribution to $59,000 ($18,000 + $6000 + $35,000). That would
> make the total contribution for both plans $304,045 of sheltered income.
>
> Can the corporation just keep the SEP-IRA with its $59K contribution or
> does it have to switch to a 401(k) with profit sharing?
>
bc
Jun 15, 2016, 5:38:45 PM6/15/16
to
On Tue, 14 Jun 2016 17:51:27 EDT, Alan <temp...@vacationmail.com>
wrote:
>Can the corporation just keep the SEP-IRA with its $59K contribution or
>does it have to switch to a 401(k) with profit sharing?
While I can't address most of your concerns, I believe a company
with a SEP is prohibited from having any other plan covering the
same employees.
Also a side note, a DC or DB plan must be adopted and minimally
funded before the end of the year. The balance of the funding can
happen between 1/1 and the due date of the return.
--
Bruce Davidson Cantor, CPA, JD
Admitted in Colorado
wrote:
>Can the corporation just keep the SEP-IRA with its $59K contribution or
>does it have to switch to a 401(k) with profit sharing?
with a SEP is prohibited from having any other plan covering the
same employees.
Also a side note, a DC or DB plan must be adopted and minimally
funded before the end of the year. The balance of the funding can
happen between 1/1 and the due date of the return.
--
Bruce Davidson Cantor, CPA, JD
Admitted in Colorado
Alan
Jun 15, 2016, 7:34:02 PM6/15/16
to
On 6/15/16 2:38 PM, bc wrote:
> On Tue, 14 Jun 2016 17:51:27 EDT, Alan <temp...@vacationmail.com>
> wrote:
>
>> Can the corporation just keep the SEP-IRA with its $59K contribution or
>> does it have to switch to a 401(k) with profit sharing?
>
> While I can't address most of your concerns, I believe a company
> with a SEP is prohibited from having any other plan covering the
> same employees.
I asked the question because I also have "heard" that you can't have a
> On Tue, 14 Jun 2016 17:51:27 EDT, Alan <temp...@vacationmail.com>
> wrote:
>
>> Can the corporation just keep the SEP-IRA with its $59K contribution or
>> does it have to switch to a 401(k) with profit sharing?
>
> While I can't address most of your concerns, I believe a company
> with a SEP is prohibited from having any other plan covering the
> same employees.
SEP (a qualified employer plan) and another employer plan. My own
research tells me that this is true if the SEP was created using IRS
Form 5305-SEP. But... if the SEP was created using a prototype SEP
document (e.g., some financial company's SEP document) then one is not
precluded from having both a DB plan and the SEP. I just need someone
to confirm this. The individual in question could rollover the SEP
money into a 401(k) with profit sharing and also have a DB plan. We are
just wondering whether we have to actually establish the 401(k) and
rollover the money.
Lastly, any time I research combo plans for the PSC, they are always a
Cash Balance plan and 401K.... never a CB and SEP.
Alan
Jun 15, 2016, 8:14:03 PM6/15/16
to
On 6/14/16 2:51 PM, Alan wrote:
> We are dealing with a QPSC (qualified professional service corporation)
> aka in the code as a PSC (personal service corporation). It is a one
> person (age 65) C Corporation with an individual marginal tax rate of
> ~50% combined federal/state. It maintains a SEP-IRA for its one
> employee. SEP-IRA contributions are maxed out to $59,000 ($53,000 +
> $6,000 catchup).
>
> I know a corporation can have a defined benefit plan (e.g., cash balance
> plan) and a 401(k) plan for its employees. A 65 year old individual is
> allowed to contribute $245,045 to a cash balance plan in 2016. That same
> individual is allowed to contribute $24,000 ($18000 + $6000 catch-up) to
> a 401K (defined contribution plan). That comes to a total of $269,045 of
> sheltered income. It is my understanding (I could be wrong) that the
> 401K plan can have a profit sharing component that can take the total
> 401K contribution to $59,000 ($18,000 + $6000 + $35,000). That would
> make the total contribution for both plans $304,045 of sheltered income.
>
> Can the corporation just keep the SEP-IRA with its $59K contribution or
> does it have to switch to a 401(k) with profit sharing?
>
I continue to research this and it turns out that using a combo plan
> aka in the code as a PSC (personal service corporation). It is a one
> person (age 65) C Corporation with an individual marginal tax rate of
> ~50% combined federal/state. It maintains a SEP-IRA for its one
> employee. SEP-IRA contributions are maxed out to $59,000 ($53,000 +
> $6,000 catchup).
>
> I know a corporation can have a defined benefit plan (e.g., cash balance
> plan) and a 401(k) plan for its employees. A 65 year old individual is
> allowed to contribute $245,045 to a cash balance plan in 2016. That same
> individual is allowed to contribute $24,000 ($18000 + $6000 catch-up) to
> a 401K (defined contribution plan). That comes to a total of $269,045 of
> sheltered income. It is my understanding (I could be wrong) that the
> 401K plan can have a profit sharing component that can take the total
> 401K contribution to $59,000 ($18,000 + $6000 + $35,000). That would
> make the total contribution for both plans $304,045 of sheltered income.
>
> Can the corporation just keep the SEP-IRA with its $59K contribution or
> does it have to switch to a 401(k) with profit sharing?
>
(Cash balance = 401 K with profit sharing) has a limitation for a one
person PSC. The CB plan is not subject to PBGC insurance and that limits
the profit percentage to 6% of $265,000 maximum compensation. So the
maximum dollars that can go into the 401K for some who has reached age
50 is $39,900 ($18K + $6K + $15.9K). This would be on top of the maximum
CB plan contribution.
I still would like some confirmation that contributions can still be
made to a SEP rather than a 401K as long as the SEP is not based on IRS
Form 5305-SEP.
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