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Question #65 test 12/04/97


Guest Jhagan
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Guest Jhagan

What is the maximum deductible discretionary profit sharing contribuiton the meployer may make for 1997?

- ER sponsors a money purchase and a 401(K)

-Employer's tax year and both plan years are calendar years.

- money purchase contribution = 5%

- Profit sharing plan provides for employee elective salary deferrals, a matching contribution equal to 50% of each employee's deferrals and a discretionary profit sharing contribution.

-NO forfeitures in 1997

Employee, 97 gross comp, 401Kdeferrals, 401 K match:

A, 200,000, 8,000, 4,000

B, 100,000, 5,000, 2,500

C, 30,000, 0, 0

D, 20,000, 2,000, 1,000

Answer is $22,950

HOW?

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1. Reduce gross comp by salary deferral since 404 still based on "net" comp.

2. Apply 401(a)(17). This is done after step one so A has net comp of 160,000. 404 "Net" comp = $303,000.

3. 15% of $303,000 = $45,450.

4. Subtract salary deferral and match. $45,450 - $22,500 = $22,950

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