Posted 27 March 2002 - 12:17 PM
So, the employer has a nondeductible contribution to the 401(k)for 2001. Pays the excise tax. What happens in 2002? How do they go about deducting this, since the DB cost will exceed 25% of comp every year for the forseeable future. Are they stuck paying the 10% tax for every year that it remains nondeductible, or is there another way out? (I'm thinking they are stuck, but I'm hoping one of you clever people can explain otherwise) Thanks.
Posted 27 March 2002 - 03:17 PM
I think it does apply if the plan has less than 100 participants.
For 2002, deferrals are not counted for the 404 limit, so you can deduct both.
I'm not sure if you would lose the 2001 deferral deduction permanently or if it would be deductible in 2002. Maybe someone else can comment on that.
Posted 28 March 2002 - 07:57 AM
Posted 28 March 2002 - 09:36 AM
Posted 28 March 2002 - 10:10 AM
Belgarath, I don't see how you are going to get guidance on this any time soon, since it's a new EGTRRA issue. Maybe a PLR is appropriate.
Posted 28 March 2002 - 10:26 AM
Posted 28 March 2002 - 10:49 AM
Posted 28 March 2002 - 11:44 AM
Posted 28 March 2002 - 03:33 PM
P.S. Logically, it would seem most unreasonable for the penalty to apply again in 2002 anyway, since the same 401(k) deferral only situation wouldn't cause any problem if it were done for the first time in 2002. But I'm not sure how I can get to that "safety zone" via statute or regulation.
REV-RUL, PEN-RUL ¶19,740, Rev. Rul. 91-4, 1991-1 CB 57., Reversions: Employer contributions: Good faith mistakes. , (Jan. 01, 1991)
The determination of whether a reversion due to a mistake of fact or the disallowance of a deduction with respect to a contribution that was
conditioned on its deductibility is made under circumstances specified in section 403©(2)(A) and © of ERISA, and therefore will not adversely
affect the qualification of an existing plan, will continue to be made on a case by case basis. In general, such reversions will be permissible only
if the surrounding facts and circumstances indicate that the contribution of the amount that subsequently reverts to the employer is attributable
to a good faith mistake of fact, or in the case of the disallowance of the deduction, a good faith mistake in determining the deductibility of the
Posted 28 March 2002 - 03:48 PM
Posted 28 March 2002 - 04:09 PM