Top heavy, sole prop and SSI

[Guest Bob Monte]

I've posted before on this subject in the SEP section and have finally realized what my real queston should be. My problem arises when trying to figure the % or amount of contibution alowable for a sole prop when dealing with Social Security integration and a top heavy plan.

For instance, if a sole prop had a PSP and wanted to contribute 15% to all employees, he would be limited to 13.04% for himself due to the special calculations regarding SE tax, etc.

So now if the plan had Social Security integration (or any kind of skewing for that matter), he could actually contibute more than 15% to his account as long as the total is within the 15% of total comp and his is less than 25%. Eg. the employees get 14% and he gets 16% due to the SSI (or any other method). And if the plan is top-heavy he has the 3% minimum for the NHCE.

So my question is how does the self employed reduction come into play and where in the calcs. If for example, the contributions were 5.7% of pay plus 5.7% for the amount over the SSI point, it is pretty staightforward if the person is an owner of a C-corp, but how does it work for the self-employed. Where does that limiting factor come into play? Would he get 5.39% (.057/1.057) for both parts? Or ??????? It seems that you allocated the money in multiple steps but when do you deal with the SE reduction?

Before I set up one of these, I would like to know how to figure it so I can see if it will be worth it under a few different scenarios.

It seems that SSI is not an enourmous benefit depending on comp. levels and it seems that for a SE person the benefit may even be less. I'd just like to figure what to expect or whether I should just keep it simple and save expenses. All this of course helps me decide if I will need a TPA or what custodian may be best, etc.

Thanx for your help and patience. I seem to have educated myself quite a bit on retirment plan matters but this one issue seems to be escaping me.