excess contribution (nondeductible)

[k man]

we have a client that made a nondeductible contribution to his DB plan, well in excess of 25,000. the only way i can see to get the money out and avoid the excise tax is to follow rev proc. 90-49 and get a Private Letter Ruling. is this the only way to do this?

[WDIK]

What led up to the excess contribution being made? Are other plans involved?

What is the plan year and when was the excess contribution made?

What size of a plan is it?

[Blinky the 3-eyed Fish]

I would also want to know to what degree the contributions exceeded the full funding limit. Although, I am not sure to why we need to know the plan size anymore.

Basically, see IRC 4972© for some other options you may have not considered to avoid the excise tax.

[david rigby]

Correct. Before going down the road to anguish of a non-deductible contribution, careful analysis by a qualified actuary is in order.

You don't have to give the details here if you don't want to, but we will be glad to help if you do.

[k man]

basically the client simply made a significantly large contribution for no apparant reason. kind of bizarre but sometimes clients have a mind of their own. would i be correct to say that by going for the letter ruling you don't have to pay the excise tax?

[david rigby]

would i be correct to say that by going for the letter ruling you don't have to pay the excise tax?

Might be hasty to arrive at that conclusion.

If a contribution appears to be in excess of deductible limit, the first decision is whether anyone wants to try getting it back.

- If not, review by the qualified actuary is in order to determine if it actually is non-deductible.

- If so, review of plan provisions is in order.

[k man]

they have to take the contribution back. the plan is terminating i believe. but i am trying to determine whether excise tax applies if you get the letter from the service. do you know?

[Blinky the 3-eyed Fish]

I have no actual experience with this, but I would presume if you got a PLR granting the return of the dollars that the excise tax wouldn't apply. That would only make sense.

However, kman, you didn't answer the questions posed. Are you sure you need to go as far as a PLR, as you might not have an excise tax problem in the first place?

[AndyH]

kman, if you had answered the questions before 3/15, would an increase in the formula justifying a larger deduction had been possible? You really should respond timely to questions posed by responders.

[k man]

here are some more details. the plan is fully funded. actually now it is overfunded. there is one participant and the plan year end was 12/31.

[Blinky the 3-eyed Fish]

Fully-funded and at the full funding limit are not the same thing. Not enough information still, so just read the cite and you decide. This post is dragging on tooooo long.