Deductibility of Contribution

[Dougsbpc]

Suppose you have a one participant DB with a NRA of 62. The plan has a benefit formula of 100% of FAC. The participant will reach age 62 this year, so this will be the final contribution.

Suppose the contribution is $100,000. Could he fund $50,000 by March 15, 2007 (initial tax filing deadline) NOT GO ON EXTENSION and file the remainder before September 15, 2007? Our understanding is that $50,000 would be deductible in 2006 but we are not sure the remaining $50,000 is deductible for 2007.

[Guest mjb]

Contributions are always deductible for the tax year in which they are made or the prior tax yr if made by the date for filing the tax return, Rev. Rul 76-28, if claimed on the tax return for such yr. IRC 412©(10) requires that the contribution for a plan yr must be made not later than 8 1/2 mos after the end of the plan yr.

[SoCalActuary]

The amount paid by September 15, but after the due date of the return, is deductible for the next year if it is needed to meet minimum funding standards for the prior plan year. Otherwise, it is deductible for the current plan year under separate rules, assuming it does not become non-deductible for some other reason.

This reasoning applies to plans subject to IRC 412, since I am paraphrasing a section of IRC 404 deduction rules that rely on 412.