404 vs 415

[Guest erepper]

Does your deductible contribution have to match your 415 limit?

For example, assume a 1 man plan. He deducts $30,000 for 2004. Can he still recieve an additional $10,000 for 2004? How will this effect 2005? Will he be able to do $40,000 for 2005 and deduct the 10k+40k as long as it is less than 25% of pay?

[Archimage]

He cannot deduct it for the 2004 tax year. He has to make the contribution by the annual addition deadline. This is the 30 days after 404(a)(6) deadline for making 2004 deductible contributions.

In your example, let's say the corporate tax return did not have an extension and was due on March 15, 2005. The employer can only deduct contributions for the 2004 plan year that are deposited by March 15. However, he has until April 14th to contribute all annual additiona for 2004.

Anything contributed during the 30 day period would be deductible in the 2005 tax year but it will count towards the 25% of eligible comp limitation.

[Guest erepper]

Thanks, Would he be able to deduct $50,000 in 2005 (as long as the total contribution made to the plan is less than 25% of covered payroll)?

[jaemmons]

Is this a DB or DC plan?

[Guest erepper]

DC-I have a client that inadvertantly contributed and deducted $190,000, which did not get the partners the maximum of $41,000. They would like to recieve the maximum for 2004 even though they didnt deduct it. Is this possible, if so, will they be able to duduct both this remaining portion of 2004's contribution and the full 415 contribution for 2005?

[mbozek]

Contributions are deductible only in the employer's tax year in which they are contributed or for the prior tax year if made by the date for filing the tax return with extension. See Rev Rul 76-28 and IRS Pub 560 available at irs.gov. If the 04 tax return has been filed, any contribution made in 05 will be deductible for the 05 tax year.

[Archimage]

I assume that since you say partners that the filing entity is a partnership or LLC. I am also assuming they have already filed their tax return which was due 4-15. The had until 5-15 to make any additional annual additions for the 2004 plan year. They cannot deduct any further contributions for the 2004 plan year. In your case, they are completely done with the 2004 plan year.

[Guest erepper]

I agree and totally understand that we are done with regard to DEDUCTING contributions for 2004. My question is can they have a contribution that would be applied for 2004 for PURPOSES of 415 and then in 2005, deduct the maximum for 2005 PLUS this remaining 2004 contribution that was not deducted in 2004.

[Archimage]

No. You had 30 days after the 404(a)(6) deadline to provide any further annual additions for the previous plan year (Treas Reg. 415-6(b)(7)(ii)). In your case that was 5-15.