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Is A Defined Contribution Church Plan subject to Code Section 404 limi


Guest Edward McElroy
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Guest Edward McElroy

A church is interested in establishinf a defined contribution plan, with a 401(k) element to it. The Church desire to make a one-time "past service" contribution. This past service contribution equals approximately 22% of payroll. While we can overcome the 415 issue by establishing suspense accounts, does 404 apply? Thanks. Ed

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Does the church pay income taxes?

My understanding is that IRC 404 lets limits on the amount a plan sponsor may deduct in the determination of taxable income. To me, that means that a non-profit organization is not subject to any 404 limit.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Can a church make employer contributions to a 403(B) plan on a discrimatory basis? How do you find out what the rules are in defining which employees can be in the plan? Would not this be beneficial to enable the church employees to avoid FICA taxes on their 403(B) contributions. Currently, they are bonusing the money to the employees who are then contributing through salary reduction?

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