Contribution on behalf of a deceased owner.

[katieinny]

I believe that a contribution can be made into a Keogh plan or a SEP plan on behalf of a deceased owner based on income earned before he died. I'm trying to find something that confirms that for me, but I'm not having any luck. Any ideas --or am I wrong.

[mbozek]

I dont know if there is a deduction for contributions made after the owner's death because his 1040 only includes amounts of income and deductions allocated up to the date of his death and deductions for retirement plans are claimed on the 1040. After death his estate files a 1041 return for all amounts of income and deductions incurred by the owner. You should check the instructions for the 1041 form to see what deductions may be claimed or check with a tax advisor.

[Appleby]

I couldn't find any reference either..

Borrowing from rulings on a similar issue for IRAs, the IRS’ position is that since the purpose of funding the retirement account if for your retirement, if you are deceased then you there is no need to fund your retirement account anymore.

However, if there are other participants in the plan who will be receiving contributions for the year, failing to contribute for the deceased could create compliance issues . .

[Blinky the 3-eyed Fish]

Going on purely logic here, but what if the plan was a money purchase plan and the deceased owner had earned the right to the allocation (i.e. worked 1,000 hours or whatever)? I know of nothing that requires death to alleviate this funding requirement. I would suppose the same concept applies to whether or not a profit sharing contribution could be made.

[GBurns]

A 1040 includes amounts shown on other documents such as W2, 1099, K1. None of these have any provision for "amounts of income and deductions allocated up to the date of his death ". Also I do not see where exemptions etc on a 1040 are prorated either. Whatever is for the year is used.

A "final" 1040 is filed for a deceased person not a 1041. A 1041 is filed after on behalf of the estate of the deceased person after the 1040.

So logically, whatever he is due is due, such as having earned the right to an allocation. This is no different than if he was a monthly paid salaried exempt employee who died late in the month, he is still due his month's salary, dead or not.

[mbozek]

I think the issue is whether there can be a deduction for a SE person if the contribution is made after his death. SE persons are cash basis taxpayers who claim deductions on a 1040 for amounts contributed during the taxable year which ends on the date of death.

According to the instructions for the 1041 form the estate comes into existance at the time of death of the individual. It includes as income IRD and other payments due the deceased but not paid prior to death. There is no allocation of w-2 or 1099 items because it is up to the executor or personal representative to determine what income is included on the 1040 or 1041.

I think that a MP plan could avoid making contributions for the year of death by amending the plan to cease contributions and then terminating the plan. The IRS has taken the position in the past that a plan for a SE person terminates when the owner dies because the business ceases to exist and a plan cannot exist without an employer.

[TPApril]

Consider MP Plan which contains many adopting Partners in professional firm. One partner dies. Based on last post, how do you amend the plan to remove the requirement for contribution if the partner has died? Otherwise how can contribution be avoided and if not who funds it?

[Bird]

If the plan has a last day requirement, with no exception for death, then you don't have to do anything - not employed on last day. If there is an exception for death, then that condition has already been met and it's too late to change. Payments would presumably be made from the estate, or, if the partner is owed money, it could come out of his distribution of profits or draw.