self employed integrated profit sharing contribution limitation.

[Guest gcrechale]

A sole proprietor(SP) has net se earnings(net of 1/2 SE tax and plan contributions) in excess of $160,000. Also has other common-law employees. He has a profit sharing plan integrated with SS at 100% of TWB. If we calculate the max contribution under code sec. 404 and allocate in integrated manner, SP receives $25,546.99 of the total allowable contribution of $34,105.04. Is this correct or is the SP's allocation limited to 15% of $160,000 ($24,000) because he is a SP.

[Larry M]

15% is the limit on total particpant compensation. This is applied to the $34,105.04 in your example. Does total participant compensation exceed $230,000 (approx)?

For an individual the limit is 25% of compensation (net after contribution).

[Guest gcrechale]

we understand all of your points. our problem is that when we allocate the contribution in an integrated manner, the SEI is receiving in excess of 15%. We are being told by others that because he is SEI, his contribution is limited to 15% of his compensation limit, which is $160,000. we don't necessarily agree with this position and are looking for other opinions. have you encountered this situation?

[Chester]

I agree with Larry. Grechale, you are getting some bad advice. The 15% limitation is applied to the total compensation, but the individual who is the owner can receive a contribution in excess of 15% of his compensation.

[Guest Mike Kimball]

I agree with the last comment from Chester....you are getting bad advice. Sadly, this is not uncommon in the pension business, the rules are complex.

[Guest ERead]

Bad advice yes - however I still don't see where we've explained -

The 15% limit in a Profit Sharing plan comes from "Total Compensation". If you have eligible compensation of say $300,000 then the maximum amount allowed to placed in the plan during the year is $45,000.00

However - each individual is limited to the lessor of 25% of "Individual Compensation" or $30,000.00 in a single year.

So - with integrated and cross-tested plans, we are allowed to allocate in amounts in excess of 15% of the individuals compensation.

Hope that helps to clear things up a bit more.