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What is the deduction limit for 2021 and also the testing salary?


Jakyasar

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Hi

DB/DC combo plans. DC is straight PS only, no other provisions. DB is covered by PBGC.

3 participants, owner/HCE, non-owner HCE and rank&file NHCE.

Both the non-owner HCE and NHCE terminated on 6/30/2021 but worked over 1000 hours. Assume each had final salary of 50k for 2021 i.e. the 2021 w-2's will show 50k for each.

Sponsor wants to terminate the PS plan as of 9/30/2021. His salary as of 9/30/2021 will be 200k and as of 12/31/2021 will be 290k. He has always been at maximum limits for the past 3+ years.

The DB plan will stay active for the time being - no 401a26 issues for 2021.

They are asking me to finalize the PS contributions for 2021 now. I have thoughts on performing all on a very conservative level but want to check on the following.

What salary do I use for the owner for deduction of PS portion and what salary do I use for testing?

If I did not ask the question properly, please feel free to correct.

Thank you

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You can't aggregate plans for testing if they have different plan years. If the PS plan terminates and has a short plan year, but the DB plan has a full plan year, that's going to be a problem if they won't pass testing separately.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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You know what, totally spaced out before asking the question, long day, brain dead. Obviously, I will have them terminate on 12/31, thankfully one of us has the thinking cap on.

Much appreciated and problem solved.

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