DB/DC combo deduction limit

[pbarrett]

I have a PLLC plan with 100% husband/wife ownership. The wife took $100,000 in comp (W2). The husband took no comp. There are no employees. The cpa wants to set up a db/dc combo plan. Based upon the db plan specs, our actuary has computed she can contribute $39,291. The CPA is under the impression she can also contribute and deduct $25,000 in the dc plan. For a total deduction of $64,291 because there are no employees.

I've reviewed 404(a)(7) (A) and © and it states if one "employee" is covered by both.... then the limit is the greater of 25% or the amount nec to meet the min funding.

I don't know at this point if the CPA is confusing deduction limits with the removal of the 415e or I've lost it all together.

Please help. What is the total deduction this owner can take?

[Mike Preston]

If $39,291 is the required minimum contribution to the DB plan, $39,291. 404a7 applies.

[Lynn Campbell]

Could she also put in 401(k) deferrals up to the 402 g limit?

[Mike Preston]

I think so.

We haven't even addressed what the plan/fiscal years are here. Hopefully, it isn't a 2002 calendar year that is being addressed!

[pbarrett]

It is a 2002 plan year. The money was contributed 2/04/03 for 2002. The db of around $39,000 and $25,000 ps.

When I read that if no "employee" is covered by both plans, the regualr deduction limitatins apply with respect to each plan... if any employee is covered by any combination of db and dc then the greater of 25% or minimum funding etc.--- does employee mean participant?? No diff if you are a NHC participant or HC or key?

If I'm getting this, on combo plans like this one, the owner for 2002 could have received the db minimum funding plus a $12,000 deferral if she had funded it timely (including catch up due to being over 59.5), right?

For 2003, it sounds like this client can only get the $39,000 (appx #) right????

Thanks for your help!

[pbarrett]

Correction on last reply-- catch up on individual 50 or over-- should have reviewed before I sent it.

[Mike Preston]

No diff. Any type of employee.

The k deferral would have had to be a deferral. Taken out of payroll and all that.

Yes 404a7 will apply in 2003, too.

[Blinky the 3-eyed Fish]

The accountant could be intending to use the flip-flop method to avoid 404(a)(7). That would actually be very irresponsible of him/her to try and do this without coordinating it with you beforehand, but it's a thought.