Does a Nondeductible Contribution Considered a Basis On Distribution?

[Guest amadeus]

A sole proprietor sponsors a db plan in which the owner is the only participant. In a given year his 412 minimum contribution exceeds his earned income, resulting in the contribution being nondeductible. Assuming the contribution is not returned to the sponsor, will the nodeductible contribution be considered a basis in the participant's ulimate distribution?

[Guest dsyrett]

Basic principles would suggest that it would become basis but I have found nothing that would allow it to become basis.

Separately, note that all or part of this nondeductible amount could become deductible during the later life of the plan.

[mbozek]

There are two separate taxable events governed by two different tax law sections. The deduction by the self employed person from net earings from SE is permitted under IRC 162 to the extent of the limitations in IRC 404(a)(8). The taxation of amounts distributed to any distributee is governed by IRC 402(a) which has no exception for the transaction that you describe. Under a Q plan all amounts contributed by the employer to the plan are pre tax except for after contributions made by participant. How does the excess contributions over net earnings from SE become an after tax contribution of the self employed owner as a participant?