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The employer is a corporation. The owners gross W-2 compensation is $1,000,000+. So not worries with the SE income calc. Thanks for everyone's input.

We have a profit sharing plan (no 401(k)) that has 1 owner and 1 employee. The owner's compensation is $330,000. The employee's compensation is $200,000. Total compensation is $530,000. Maximum deductible contribution is $132,500. The Plan provisions state the profit sharing contribution is allocated on a pro-rata basis based on compensation. The owner wants to provide himself and the employee with the maximum annual addition of $66,000 or a total contribution of $132,000 or 24.90566% of payroll. In order to provide the employee with a total allocation of $66,000, the pro-rata allocation percentage must be 33% of compensation. However, providing the owner with an allocation of 33% of compensation or $108,900 will violate 415 for the owner. Can we limit the owner's allocation to $66,000 and still provide the employee with an allocation of $66,000 or 33% of compensation. I am concerned the IRS would say the terms of the Plan are not being followed because the ending allocation is not pro-rata based on compensation. The Plan states the following in the 415 limitation section: "If the Employer contribution that would otherwise be contributed or allocated to the Participant's Account would cause the Annual Additions for the Limitation Year to exceed such maximum permissible amount, the amount contributed or allocated will be reduced so that the Annual Additions for the Limitation Year will equal the maximum permissible amount." This language seems to indicate we can reduce the allocation for the owner to $66,000 and still provide the employee with $66,000. Thoughts?

Thanks for your input CB Zeller. However, the definition of the Accrued Benefit under the Plan is the actuarial equivalent of the Hypothetical Account Balance. Under the situation above, if the Hypothetical Account Balance exceeds $71,779, then the Accrued Benefit (actuarial equivalent of the Acct Balance) exceeds the 415 maximum benefit at 12/31/2023. I agree that the Hypothetical Account Balance at 12/31/2023 does not need to be limited to the lump sum value of the 415 Maximum Benefit payable at 12/31/2023.

We are setting up a Cash Balance Plan with two participants. One participant is age 41 with an average annual compensation (3 year) of $49,263 at 12/31/2023 and she has 3 years of service with the employer. Interest credit rate = 5% and Actuarial Equivalence is 5% and '23 417 AMT. How do others calculate her maximum account balance at the end of the first year of the Plan? My process is: 415 Maximum Accrued Benefit as of 12/31/2023 payable at NRA (62) as a life annuity = the lesser of 1) Comp Limit = $49,263x(3/10) = $14,779 or 2) $ Limit = $265,000x(1/10) = 26,500. 415 Maximum Accrued Benefit = $14,779 payable as a life annuity at age 62 (NRA). Based on the 415 Maximum Accrued Benefit, her Account Balance as of 12/31/2023 must be limited to ($14,779 x a62) / 1.05^21 = $71,779. My understanding is that the Accrued Benefit under the plan is the actuarial equivalent of the Account Balance. The Accrued Benefit cannot exceed the 415 Maximum Accrued Benefit. I think this is pretty straight forward, but we took over a plan from a large TPA/Actuarial Firm who seemed to ignore this. Is there something I am missing?

A small law firm operates as an LLC and is taxed as a sole proprietor. The law firm sponsors a 401(k) profit sharing plan. The sole member of the LLC makes 401(k) deferrals. Which bank account should the LLC member use to pay his 401(k) deferrals into the Plan, personal account or the LLC's bank account? Does it matter?

Thanks everyone. That has been my understanding. Effen, thanks for the point on the document.

If a defined benefit plan offers lump sum distributions upon plan termination, does it also have to offer an immediate annuity under the J&S rules? For example, a participant is age 45 and not otherwise eligible for a distribution until age 65. Upon plan termination, the plan is amended to offer lump sums. Does the Plan also have to offer this participant an immediate annuity?

The wrong compensation was used in the allocation of the 2020 profit sharing allocation. The Plan Sponsor left off a bonus for 3 employees when they reported the compensation to the TPA. We have determined an additional $5,000 + investment earnings must be deposited to the Plan. For 2021, the earnings percentage was 11%. For 2022, the earnings percentage was -18%. Do you use the negative earnings for 2022?

We have a Profit Sharing Plan that was sponsored by a sole proprietor. The business he owns has employees who are participants in the Plan. The Sole Proprietor passed away. His will left his assets to a revocable trust. Does the revocable trust become the plan sponsor? Can a revocable trust be a plan sponsor? Has anyone had an issue like this?

We are in the process of distributing benefits from a small Cash Balance Plan that is covered by the PBGC. There are two participants with lump sum benefits less than $5,000 that cannot be located. The Plan allows for automatic rollover of small benefits. Can we rollover the lump sum to an IRA for the two participants that cannot be located or do we have to go through the missing participant program with the PBGC?

We are the actuary for a cash balance plan that uses the actual rate of return for plan assets as the annual interest credit. The interest credit percentage is limited to 6%. The Plan had an asset return of 21% for the 2020 plan year. As a result, the assets exceed the participant account balances by a considerable amount. Any suggestions on how to use these extra assets for the participants? Can we have an ad-hoc interest credit or pay credit to bring the account balances up to the assets? I want to make sure we do not violate the accrual rules or discrimination testing. Any suggestions would be appreciated.

Is it possible to amend a 401(k) Plan with a non-elective safe-harbor to add In-plan Roth Rollovers before the end of the year?

I have a prospective client that has income as a sole proprietor and he also has an LLC taxed as a partnership. He owns 99% and his wife owns 1% of the LLC. Is there any reason why he cannot adopt a DB Plan as a sole proprietor and have the LLC be an adopting related employer? Someone told the CPA he had to have two DB Plans, one for the Sole Proprietorship and one for the LLC.

Have a Profit Sharing Plan with three participants, Husband, Wife and Employee. Employee terminated and received a distribution. As a result of the distribution, there is a forfeiture of $5,000. Plan calls for forfeiture to reduce employer contribution. Plan Sponsor had bad year and received no compensation. What can we do with the forfeiture?

If the participant's average annual compensation is $3,000 per month, his age is 43, normal retirement age is 65 and testing assumptions are 8.5% pre, 8.5% post and 71 GAM-Male, the calculation of the Equivalent Contribution Rate is: .005 x $3,000 x 94.79854 x (1/1.085^22) / "Plan Compensation for Plan Year" = Equivalent Contribution Rate In calculating the Equivalent Contribution Rate, is it possible to use 3-year average compensation for the "Plan Compensation for Plan Year". Since average annual compensation is based on a 3-year average, it seems you should be able to.