I am trying to find the simplest answer to the maximum contribution of a one person business - incorporated, that is making north of 1,000,000 per year.

He is establishing a DB plan this year and making the maximum contribution he can make into the plan is about 149,000 to provide the max benefit at age 62.

I understand that he can also use a solo 401k and defer 15,500 + 5,000 for a catch up since he is over 50.

QUESTION 1- Can he also fund up to 6% of compensation into a profit sharing portion of the solo 401k up to 29,500 (45,000 limit minus the 15,500 deferral= 29,500).

QUESTION 2- What is the 6% number based on in this total compensation- if he made 1,000,000 but he deferred 20,500 into the solo 401k plus contributed the 149,000 into the DB would his total compensation be 1,000,000 or 979,500 or 830,500.

QUESTION 3 - Is the 6% number essentially capping out at 491,667 of income (29,500/6%) - I guess this number would be clearer if # 2 were answered.


QUESTION 4 - Finally if an individual made enough money is he allowed to max out a DB plan and max out a 401k with a profit sharing up to 50,000 since he is over 50?

You need to understand that 401(a)(17) is part of this calculation.
$225,000 x 6% = $13,500 for beginning 2007 year
$220,000 x 6% = $13,200 for beginning 2006 year

So does that mean the max limit is 20,500 + 13,500 + whatever a DB plan allow?

That's the essence of the new deduction rules.

Question 1 - according to the new draconian IRS position stated in IRS Notice 2007-28, if you make any DC contribution other than elective deferrals, then 404(a)(7) applies, so that deduction would be limited to the greater of (a) 100% of DB UCL (assuming this is a non-replacement plan) or DB minimum or (b) 25% of compensation, where for this purpose, compensation is limited to $225,000. In short, Q&A 8 appears to say you could contribute the DB minimum and 6% to the DC. Since 25% of $225,000 exceeds your DB minimum, this answers your Question 3 that couldn't make deductible PS contributions to DC exceeding 6%, or for 2007, $13,500.

Question 2 - Compensation (net of deferrals) for computing DC would be limited to 401(a)(17). I.e., could contribute 6% of $225,000, not 6% of $1,000,000.

This all presumes that the $149,000 is either a 412 minimum or not more than 100% of current liability, right? In other words, you cannot contribute a dc contribution and more than the "minimum" to the DB where the minimum is the greater of 412 or 100% of CL and the combined total exceeds 25% of pay (per the Notice referenced).




Edit: lesser was edited to greater. OK Austin?

Did you mean "lesser"?

Good edit. Lesser was intended to be greater. I'd edit my post but then Austin Powers might attack me! Well I'll have to chance it.

OK from my perspective. Nicely done, AAMOF. ;-)

Had to look up AAMOF. I was concerned for a moment that it might be along the lines of FYIFV

Nah. Besides, while that might be a nice acronym to steal into our domain, it refers to options.