Takeover Plan-Fail deduction limit

[Guest MEWilson]

I am working on allocations from 1999 through 2003. For 2001 the Employer contributed more than the deduction limit (21% of comp). For 2002 and 2003 they contributed 25%. How do you handle the excess from 2001? Should the excess be returned to the employer???

Thank you for your help.

[david rigby]

Does the plan already address this?

Perhaps you can inquire of the prior TPA how they determined the deductible limit, just in case there are facts not yet in evidence.

[SoCalActuary]

Can you explain how the deduction limit was 21%. Did 415 apply to reduce it?

Or, Was this a profit sharing plan still subject to 15% in 2001?

Also, were the tax returns done with the entire amount deducted? If so, and the contribution included non-deductible amounts, then the return should be redone and back taxes are due.

Some plans allow a refund for non-deductible amounts, but often it is written to apply only to the initial qualification of the plan.

Let us assume for a moment that the contributions were all made after year end, during the receivable period. Then, the excess 2001 amount could be applied against the 2002 deduction, the excess 2002 amount to the 2003 deduction, and the excess 2003 amount to the 2004 deduction. Thus your administration for 2002, 03 and 04 would have pre-contribution allocation issues.

Then your administrative allocation of the contributions for 2001 could follow the 2001 deduction rules without worrying over the mis-allocation or redoing the excess allocation.

[Guest MEWilson]

The deduction limit was 15% in 2001 but they "contributed" 21%. The total contribution was deposited in 2001. In the following years they contributed 25%. So I will assume excess contribution in 2002 and 2003 and finally use the excess in 2004. I suppose that would be the way to handle it.

[Blinky the 3-eyed Fish]

It's been too long to remember the terminology, but for older plans there was the unused deduction available up to 25% of compensation. When was this plan effective originally?

[Guest MEWilson]

Thank you for responding! The original effective date was 1/1/1996.