Non-deductible Contribution

[ac]

I have a client that adopted a plan in 2001. The maximum tax-deductible contribution was $50,000. They contributed and deducted $60,000 for 2001. How does this effect the 2002 deductible amount. I am using Individual aggregate.

I think the extra $10,000 was a non-deductible contribution and they must pay a 10% excise tax. The 2002 asset value for 404 must be offset by the $10,000 non-deductible amount. The maximum tax-deductible contribution for 2002 will be reduced by the non-deductible carryover amount. Finally, they should amend their tax return for 2001.

Is this the way others handle this situation?

[david rigby]

So often the answer is "it depends". Sounds like deduction taken was more than permitted, but look at valuation results again to see if the 60K can be justified. Not an attorney or accountant, but the facts given indicate the tax return is in error.

However, if the $60K was contributed after the plan year end, there may be no excess, hence no excise tax. The extra $10K would be a contribution for the 2002 year, and excluded from the 404 assets. But the deduction of 60K would still be a problem.