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Adopted 2020 DB plan retroactive, after already contributed to SEP at broker

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Client adopted new DB plan under SECURE retroactive to 2020, but already contributed 30k to his owner only SEP for 2020. He really is only allowed to contribute to a DC  6% x $285k, which is $17,100.

The SEP is with Schwab, and so is the new DB. I doubt they will transfer the contribution directly from SEP to DB unless classified as a rollover (which it isn't!).

Is the only solution to ask Schwab to return the contribution as a contribution in error? Do we ask for a return of the erroneous non-deductible excess (30,000-17,100 = 12,900) or the full $30k?

Your help is appreciated!

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There is no basis for a return of contributions, or transfer.  "I changed my mind" is not a mistake of fact.

If the contribution was made in 2021, then just say 17100 was for 2020 and the rest for 2021.  Schwab may or may not reflect that in their records, but those records (IMO) are unofficial and simply a convenience for their clients to keep track of things.  If the contribution was made in 2020 I think you are stuck with a nondeductible contribution...actually I think it is worse than that, you simply can't max the DB contribution.  

Ed Snyder

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4 hours ago, Bird said:

you simply can't max the DB contribution

That is the answer. You can deduct up to 31% of "compensation" in total but if DB contribution lowers compensation then you have more issues to deal with. You can deduct up to the 31% combined max and then deduct the rest of 2020 MRC in 2021 and will hopefully have enough room from the cushion to also deduct the total 2021 MRC, otherwise you end up carrying forward. Make sure the SEP is 6% or less - but may want to take SEP out of equation altogether (replace with 401k to get the salary deferrals). Other SEP issue - if with Schwab, is it their SEP VS document being used? Because you cannot use IRS Form SEP-5305 and have another plan.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services


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