SE income above comp limits

[Guest EBC]

If a sole proprietor has schedule C income of 230,000 and 15% contributions to his employees of $6,000. Can his contribution be $25,500 (15% of 170,000)?

Any comments?

Thanks

[GBurns]

Contribution to what?

[Medusa]

It sounds like you are talking about a profit sharing contribution and it sounds like you are asking whether the $170,000 cap applies before or after reducing compensation for deferrals. There was an earlier thread on this subject, and I believe the conclusion was that compensation is capped after subtracting deferrals.

http://benefitslink.com/boards/index.php?showtopic=9690

[Belgarath]

With the numbers you have given, yes, he could get the 15%.

Be careful, however, not to just take 15% of 170,000. You need to do the appropriate earned income reductions. For example, if his income was 176,000, and you contributed 6,000 for the employees, leaving 170,000, you would NOT be able to contribute 25,500. Basically, (for 2000 calendar plan year) the employer would need at least 202,942.00 remaining AFTER deducting the employee contribution, in order to receive the maximum.