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Profit Sharing Only Plan (no 401(k))


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I have an owner-only plan that has no 401k provision, it's pure profit sharing. He W-2's himself $20,000 per month, so he's paid himself $140,000 so far this year.  He would like to contribute $30,000 to his profit sharing plan for 2021 this week. 

His current TPA is telling him that he needs to wait until after the end of the year; that "the rules say" he can't fund it during the plan year. 

I've never heard of this - is there anything in the regs that disproves this? Thanks in advance - 

Sue

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16 minutes ago, Sue B said:

His current TPA is telling him that he needs to wait until after the end of the year; that "the rules say" he can't fund it during the plan year. 

Why spend time disproving it?  The TPA said the "rules say" he needs to wait, have them cite the rule(s) that says so.

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In the scenario you describe, I am assuming that the owner is self-employed and not incorporated. If that is the case, to know qith certainty how much can be contributed and deducted to the plan, you would need to determine the net earnings from self-employment, which can only be precisely measured at the end of the year. (I will spare you the tedium of wading through the intricacies of making that determination). That said, however, nothing precludes the owner from making a rough calculation of the net earnings on a month-to-month and a year-to-date basis and conservatively estimating the amount that may be contributed to the plan on his behalf. If more than the deductible percentage of the net earnings from self-employment is contributed, the excess amount is nondeductible in the year of contribution, but the excess may be carried forward to the following year.

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Or if the situation Sue B describes is a subchapter S corporation and its shareholder-employee, a retirement plan contribution might be a percentage of the employee’s W-2 wages, even if the corporation has (and passes through to its shareholder) a loss for the year.

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2 hours ago, rocknrolls2 said:

In the scenario you describe, I am assuming that the owner is self-employed and not incorporated. If that is the case, to know qith certainty how much can be contributed and deducted to the plan, you would need to determine the net earnings from self-employment, which can only be precisely measured at the end of the year. (I will spare you the tedium of wading through the intricacies of making that determination). That said, however, nothing precludes the owner from making a rough calculation of the net earnings on a month-to-month and a year-to-date basis and conservatively estimating the amount that may be contributed to the plan on his behalf. If more than the deductible percentage of the net earnings from self-employment is contributed, the excess amount is nondeductible in the year of contribution, but the excess may be carried forward to the following year.

Completely inconsistent with W-2.

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Maybe there's a contract in place that precludes contributions before the last day of the plan year. We don't know the circumstances of years past. Maybe it wasn't an owner only plan and making contributions before the end of the year now that it is an owner only plan brings up nondiscrimination issues. Otherwise I can't see any reason.

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6 minutes ago, digger said:

If the plan has a last day requirement, then he's not entitled to a profit sharing allocation until the end of the year.

I doubt he's going to fire himself....

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