ubermax

Beautiful , thanks RatherBeGolfing , very straight forward when you know how !!!!

I want to do a search of the message boards by author to find posts that I either started or provided input to but I'm having trouble getting the search to work - I clicked advanced search and selected "by author" and then provided my screen name but then get an error message . Was wondering if I could get some instructions on how to search by author .

Agreed , I'll second that !!!

No, the loan isn't taxed ; the interest on the loan is from after tax dollars and then that interest with any growth would be taxed again at distribution .

Lou , I think you're referring to just the tax at the back end when the money is withdrawn - not sure if you read the article that 2 cents noted above , but it seems to support the idea that the interest paid on the K loan during its' lifetime is from after-tax dollars and hence the double taxation of the interest paid . In the response by 2 cents above , he assumed a no interest loan and so it's only principle replacing principle like you said.

Thanks My 2 cents , good example and I guess when you consider interest you come back to that Contingencies article which seem to point out that the interest is double taxed .

Page 12 is an interesting read ( thanks Dave R for the link) ; a common point of the inserted article "Debunking .........." and the first full paragraph of the continued main article on the same page is that possibly only the interest paid by the borrower is double taxed ; to me there's a lot of hand waving going on rather than a mathematical demonstration - at first I thought the "Pure Theory Example" would be a solid demonstration but then at the end the author says "This difference 852 vs. 772 is most likely attributable to a double tax on the interest paid" - not a very forceful statement . I can also see where some would reason that there's a double tax on principle and interest ; assume a principle payment of 100 , interest of 4 and tax rate of 20% ; if the participant repays the loan with after tax payroll deductions , he withdraws 125 to cover principle and 5 to cover interest , i.e. 100 to principle , 4 to interest , & 26 to taxes - this sounds like it leads to double tax on both P&I . I'd be interested if anyone has a good mathematical proof that proves only single taxation on the typical K loan ?

Another approach would be to start with basic principles which Mike outlined above instead of the worksheet in Pub 560 . Let D=deferrals , EI = Earned Income , and N = Net Earnings From Self-Employment - then we want D+(.25)EI <= EI or D<= (.75)EI ; now we also know that EI= (.80) N and so D <= (.75)(.80) N or (.60) N ; now if we set D=18,000 we get N = 30,000 & Profit Sharing contribution = (.20) N or 6,000 - in summary D=18000 , PS = 6,000 & Catch-up = 6,000 since we know as Mike pointed out that the Catch-up doesn't fall under the 415 limitation . Mike , please double check what I've laid out above & thanks again for your time and insights .

thanks everyone for your time and insights and I agree Jpod , the profit sharing alone captures the entire allowable .

For a solo 401(k) plan with no deferrals or match , I believe the following expression is correct for the determination of the maximum deductible profit sharing contribution : Net Sch. C Profit - 1/2SETax - (.25)(Earned Income) = Earned Income and so the max profit sharing contribution is 20% (i.e. 25/125 ) of (Net Sch. C Profit -1/2Se Tax ) . Now , if there are deferrals and match , are they both , or only one , or neither subtracted from the left side of the equality shown above ? Thanks , in advance , for any replies .

It's been awhile since I've looked at this but unless the 415 reg has been amended since that time I remember it this way : (Comp Limit adjusted as 2cents noted) x Min( APR(plan factors) , APR (5.5%, Applicable Mortality), 1.05*APR(Applicable Factors) ) Applicable Factors are of course the 417(e) interest and mortality factors . I edited the original post to replace $Limit with Comp Limit since the OP noted that the Comp Limit was < the $ Limit of Section 415 .

Kravitz has some software also ; I also did some testing for a few DB/DC combos on a spreadsheet and found that designing the spreadsheet itself required some reading and eventually led to a good understanding of the rules ; and so I think the fact that you used a spreadsheet gives you solid footing for your next step . The few plans that we had were small and being primarily a large plan shop we didn't promote this business ; I enjoyed discrimination testing and probably could have done it full time .

yeah , in the blood , pathetic !!! hey it's a hot topic now !!

I'm on vacation and left the regs at home

and 1.417(e)-1(d)(4)(iv) for the averaging part .

Thanks David , I looked at those Notices back in '07 , -67 & -81 to no avail & thought there was a more recent one , didn't think about the Reg. itself . Thanks again !!!

Apparently each segment rate used in the calculation can be an average over certain lookback months immediately preceding the stability period ; and if the plan had been amended to adopt this new methodology , then for a year following the amendment lump sums are determined using pre-amendment methodology , if greater. Could someone provide a cite(s) supporting this ? Thanks , in advance to those who respond !!!

Not sure where Dave is coming from ? service agreement ? expectation of free advise ? I'm an EA and can figure it out myself if need be - have a friend who has a SEP and is thinking about adding a DB - just got me thinking how I would do it using Excel , that's pretty much it. And John, judging by the response count to my post , I'd bet that most EA's these days are utilizing a valuation system for sole-prop DBs . For the DC we have for example : Net Sch. C - 1/2 SE - 6% EI = EI and we solve ; extending to the solo DB case we get , Net Sch. C -1/2SE - ( an Excel cell that calculates TNC & SFC Using EI where needed) -EI =0 and can use Goal Seek to hopefully converge to EI - you essentially start with a seed value for EI and let Goal Seek take it from there . But I don't think the DB equation is always solvable and I think you end up getting close and then adding some to get a "recommended" contribution in those cases. If anyone runs these through Datair , Garcia , or any of the other "small plan" systems , I'd be curious to know if the system always produces a unique solution. This is basically a personal interest and academic question .

thanks Andy , yes (2) beats (1) , but each expression is correct on its' own as the max for the particular combination of plans , correct ?

For an incorporated self-employed over 50 individual with no employees, am I correct that in terms of maximum deduction : (1) 6% of Comp into the SEP + the full DB maximum or (2) 6% PS , 23K ( deferrals + catch-up) , & the full DB max. and of course limited by the 415 rules , e.g. part < 10 years , $limit, etc.

Just wondering if anyone has used a spreadsheet to work out the Min. Funding Contribution for a Sole-Prop with a DB plan ? I recall trying to do it years ago & as I recall it required a lot of trial and error - just wondering if anyone has tried it and, if so, how they went about it in general ?

I'm looking at Code sections 408(k)(2)© and 408(k)(7)© ---------- the terminated employee obviously didn't have comp for that first fiscal year beginning 9/1/2014 --- I'd have to read that proposed reg for context but I would think the Code would have more weight than a proposed reg. and this seems different than a "last day rule" .

Belgarath, do you have a link to that Proposed reg ?

I guess then the question still remains , if a new prototype SEP is adopted 9/1/14 and also effective then and the plan and fiscal/tax years are all the same running 9/1 to 8/31, then are employees who terminate in 2014 before 9/1 entitled to a contribution ?

Two Questions : (1) Can a small employer , assume a C-corp , have a fiscal year = tax year = plan year for a new SEP run from 9/1/2014 to 8/31/2015 ? (2) If the answer to (1) is "yes" , are employees who terminated prior to 9/1/2014 entitled to a contribution ?