Late contribution to PS plan

[Gary]

A sole prop (she is only employee) had earned income of $100,000 after 50% reduction for SS taxes.

Therefore, the client could have contributed up to $20,000 (25% of 80,000) to her PS plan.

The tax return due date was 4/15 and the contribution was not made by that time.

Clearly the person cannot receive a deduction for 2004, but if the client makes the contribution for 2004 now (7/22/05) does the client also get hit with the 10% non deductible contribution excise tax?

Point being is that it is not above the 20,000 limit, just late.

Thanks.

[david rigby]

Doesn't the 10% excise tax apply to non-deductible contributions, rather than non-deducted contributions?

[Blinky the 3-eyed Fish]

The contribution is more than 30 days after the tax return due date so it is an annual addition for 2005. Therefore 2005's earned income will be applicable in determining what the 2005 deduction limit is. She might as well wait until next year after her earned income is determined. She missed being able to contribute for 2004.

There is no excise tax issue.

Not sure why you posted this is the DB section though, since you state it's a PS plan.

[Gary]

I posted it here as at first I saw this as a pension deduction issue, not necessarily relevant that it was related to a PS plan.

However, the 30-day limit does put a new light on this analysis.

Is there a cite regarding the 30-day limit stated?

Based on pax's reply, since this is a non deducted contribution it would not be subject to an excise tax, but based on the 30-day limit it could not even be credited for 2004 (which was the client's intent)

The client's problem occurred when she did not file for the extension properly.

Thanks.

[Blinky the 3-eyed Fish]

§1.415-6(b)(7)(ii).

[E as in ERISA]

Are you 100% sure that the tax return wasn't extended?

[Gary]

The client said that the IRS informed her that the extension was denied for bieng sent too late.

[mbozek]

The 10% penalty will only be assessed to the extent the PS contribution exceeds the amount deductible under the tax law for the year in which the deduction is claimed.

A contribution made after the filing of a tax return for 04 will be deductible in 05 and subject to the excess contribution penalty tax for 05.