ubermax

well to be honest it sounds to me like you're trying to "game the system" - that's OK but first you should do your homework and check the CB regs to see if different crediting rates by HCE/NHCE status is cricket , different AEQ factors by status doesn't smell right but I'd have to do some research to prove it out and don't have time now . a response , not the one you wanted but that's it - good luck !!!

good stuff from 2 cents ; I've attached the final 2009 ppa regs & there's a nice cash balance example on page 53045 - the target normal cost calculation is similar to that of the funding target - the regs themselves provide a lot of good info. E9-24284.pdf

great !! thanks Andy .

didn't realize that the 1.05 * (applicable factors) hasn't been applicable for small plans for awhile - could someone provide a cite for this ?

this paper was good & there was also one by Sohn & Atteridg from the '91 Pension Section News - and additionally there supposedly was one by Larry Sher that was in the '82 Transcript of the EA Meeting. I'd be interested in getting a copy of the Sher paper if anyone has it or can direct me to a site - in the meantime I've left my name with the Conference and they're checking their archives . Sorry that I couldn't add any thoughts for the OP but Calavera opened the door for this query .

diito to Andy's suggestion

the note goes back to 2006 - got it from an attorney who along with myself was representing a client that was undertaking a window - at the time there wasn't too much available from various meeting notes that I had - I thought the note was good in that it touched on several different areas . my primary interest and focus at the time was non-discrimination testing - don't think PPA changed that very much if at all - but I could be wrong on that ?? but again I didn't necessarily think it would answer the OP's question but rather wanted to share what I had and much of it is probably still relevant.

I've attached a write-up discussing early retirement windows - it may or may not address the current issue but it looks pretty good . . Early Retirement Windows.doc

You want to make sure that you're calculating the max correctly also - I posted the following awhile ago on another forum when $195,000 was the dollar limit & it assumes commencement between 62 & 65 ; some of it would have to be modified if you're using the pay limit and/or an age outside the noted range - hope this helps - good luck !! per the 415 regulation , given a lump sum the SLA equivalent for determining if 415(a) is violated is max( a,b,c) where, a = LS/(APR(plan i , plan u)) b= LS/(APR (5.5%, app u)) c= LS/(1.05 (APR(app i , app u))) now, max (a,b,c) implies that one or more of the above denominators is the smallest; so if we vary LS until at least one of a,b,c reaches 195,000 , then that APR * 195,000 is the maximum lump sum . said another way, starting with the 415 SLA dollar limit , the max PPA lump sum using the current dollar limit is : 195,000 * min { APR(plan factors), APR ( 5.5% & app u), 1.05 APR (app factors) }

I go along with "My 2 Cents" ---- he/she has got it !!

the answers above are great ; my question & curiosity is how the CPA converts earned income to capital gains ? - I thought gains were related to asset investment - I'll admit that I've been away from sole props & partnerships for awhile but from the little that I recall I thought "earned income" was a derived amount given income & expenses from the C & considering SE tax and pension contribution.

Andy comments above that he doesn't understand the 31% - after reading 404(a)(7) it's not too hard to understand the confusion - that 31% has become part of many discussions that involve (a)(7) - I believe that (a)(7) itself could do a better job by adding a statement at the end of both (7)©(iii)(I) and maybe even (II) that says something like " the first 6% will fall separately under the provisions of 404(a)(3)(A) " - the current wording of (a)(7) implies that and many if not all practitioners assume that but I still feel that (a)(7) could spell it out more directly - my opinion . and so you'd have a combined limit of 25% under (a)(7) where only DC contributions over 6% are considered and another 6% under (a)(3)(A) for the 31% - I'm assuming that the 25% is greater than both the MRC and (FT - Assets) . Most likely at some point in the past practitioners got informal guidance on this at a meeting or conference and now the 31% is part of discussions involving 404(a)(7) .

Karl, SoCal's final point is a good one but to your question I've attached final regulations that were published in '09 - example #13 at the top of page 53045 is instructive - the target normal cost would be developed in a way similar to the funding target in this example but based on the pay credit for the year - you would naturally have to substitute the segment rates, accumulation rate, and any other assumptions for your particular case. I know this isn't a direct answer to your question but together with other information available from sources like ASPPA , etc. you should be well on your way to gaining some insight. Good Luck !!!!!!! E9-24284.pdf

the participant is entitled to his accrued benefit , the entire accrued benefit, and can opt to receive it under the forms specified in the plan document - look at IRC Section 411© - I don't think either (1) or (2) is legit . in the past the 120% accumulation could in some situations produce an ee accrued greater than the plan accrued & the greater amount could be paid out ; that provision was eventually deleted/amended out of 411© .

RC check the 415 regs , as I recall you would apply the benefit , i.e. hopefully the 205K as Mike suggested, against the smaller of three(3) APRs in order to comply with 415 .

let's put numbers on it - say I want to put 15% into my DC - what I'm taking away from 404(a)(7) is that I can deduct 6% of that 15% and the 11% balance plus my anticipated DB contribution is compared to the combined limit , 404(a)(7)(A) for deductibility - I've heard another viewpoint that once the DC contributions exceed 6% you compare the entire 15% plus the DB against that combined limit. I'm just want to know how others are reading/interpreting 404(a)(7) .

Looking at 404(a)(7)©(iii)(II) , i.e. "if such contributions exceed 6% of such compensation, this paragraph shall be applied by only taking into account such contributions to the extent of such excess". to me this says that ,in the case where DC contributions exceed 6% of comp , the combined limit of 404(a)(7)(A) only applies to the total DB contribution plus the excess DC contributions rather than the entire DC contribution ; another view that I'm aware of considers the entire DC in applying the combined limit of 404(a)(7)(A). I feel that the implication here is that the DC contributions <= 6% fall under the individual DC limit of 25% of comp & hence are deductible separately under that limitation. thanks in advance to those who respond .

http://en.wikipedia.org/wiki/Federal_Insur...butions_Act_tax I found the attached site and the information under "self-employed people" pretty good - mwyatt & masteff were probably saying the same thing in my related post and I thank them for their time and input .

it seems like the intent of the rules is to structure it so that sole props get the same tax treatment as the C-corp wrt the FICA taxes ; suppose I'm a C-corp and take a salary of $100,000 and remit $15,300 to cover my FICA obligation but only claim a salary expense of $92,350 when I file ; and then I pretend I'm a sole prop and take $7,650 on line 27 and pay $15,300 per line 56 - similar treatment . but to me that's not what's happening here with the way Sch SE is designed - I take $100,000(.9235)(.0765) or $7,064.78 as a deduction on line 27 & remit $100,000(.9235)(.153) or $14,129.55 via line 56 to cover FICA .

totally agree and the OP should probably have been titled "SE Tax Question" ----- Code says the deduction, i.e. line 27 is (Sch.C net profit)(1-.0765)(.0765) ; again ,my curiosity is the IRS use of that middle factor, (1-.0765) - what is the intent or reason of applying that factor ?

right now if I'm a w-2 ee making 100k , my FICA=His FICA= $7,650 - to me that calculation should be the same for the sole prop , i.e. .0765 X Sch. C with an additional benefit for the sole prop in that he gets to deduct it on line 27; but the .9235 is on that SE & we have to accept it but it still doesn't make sense to me ; to me you probably get to that .9235 with reasoning that isn't hitting me yet :angry:

correct and Pub. 560 does mention that SEHI is to be ignored when calculating 1/2 the self employment tax ; my confusion is explaining that .9235 factor used on Sch. SE in the context of the particular Code sections , i.e why isn't SETax based on the net profit number brought over from the C ?

so for the Sch. SE instructions Line 3 to be accurate , Line 2 must be known as NESE ? - I thought it was Sch. C profit - also in trying to draw a parallel between SE tax and its' counterpart for a W-2 employee , the W-2 employee's portion of OASDI & Medicare is 7.65% of gross salary whereas for the self-employed we're first reducing Sch. C net profit by 7.65% and then determining the self-employment tax - and of course for 2010 there was also the line 29 self-employed health insurance deduction. I can understand the self-employed getting the income tax break by providng that 1/2 SE deduction but it seems like they're paying a smaller SE Tax compared to the W-2 employee ?

these are good sites ; I guess I just thought NESE was what you got after multiplying the amount brought over from Schedule C by .9235 ;but line 3 of the 2010 Schedule SE is reducing that Schedule C amount not NESE - what am I missing here ?

the instructions for line 3 of the '10 SE are somewhat clear " you can reduce your net self-employment income by the amount of your self-employed health insurance deduction" which it goes on to say is found on line 29 of Form 1040;seems to me that line 3 is actually reducing Schedule C income. Sec. 2042 of SBJA titled "Deduction for Health Insurance Costs in Computing Self-Employment Taxes in 2010" points to an amendment to Paragraph 4 of IRC Section 162(l) ; the amended wording is " the deduction allowable by reason of this subsection shall not be taken into account in determining an individual's net earnings from self-employment ( within the meaning of section 1402(a) ) for purposes of chapter 2 for taxable years beginning before January 1, 2010, or after December 31, 2010" ; implying that for 2010 it shall be taken into account. practitioners would follow the line by line mechanics of Schedule SE ; but to me the words shall be taken into account are fuzzy . I just think the wording in both the 2010 Schedule SE instructions and 162(l) are not precise enough - anyone agree ? disagree ? I'd also be interested in knowing if there were unpublished discussions with IRS or other cites that clarified this ?? thanks , in advance, to those who respond .