Exemption from Excise Tax on Certain Non-Deductible Contributions in DB Plans after 2001

[Dennis Povloski]

With regard to Non-Deductible Contributions to a DB plan, in going through the ERISA Outline Book, it appears that you can disregard contributions that are not in excess of the old ERISA full funding limit for purposes of calculating the excise tax due on the non-deductible, and then the non-deductible gets carried forward into the following plan year. this references IRC 4972©(7).

Is anyone familiar with this, and if so, did I understand it properly?

Thanks!

Dennis

[Blinky the 3-eyed Fish]

You did understand it properly.

[Dennis Povloski]

Learn something new everyday! Thanks for the confirmation on that!

Dennis

[Blinky the 3-eyed Fish]

It was a new provision with EGTRRA.

You do need to be careful though because the nondeductible will carryforward, which means that a nondeductible that is exempt from the excise tax one year may easily become subject to excise tax in another year. For example, if the assets do terrific, you may have a very low full funding limit in a following year and that may cause you problems. Try and get the nondeductible deducted as soon as possible.