Dumb question regarding SP funding

[mwyatt]

I have a client that is a sole proprietor w/ a DB plan. Based on the individual aggregate cost method, she had completed funding for IRC 412 purposes by 9/15/2007. She has now come back to me and is wondering if she could put additional funds into the plan for 2006 by her 10/15/2007 filing deadline. Amount she has under consideration would be under the 150% UCL cap.

My question is this: clearly these contributions for 412 purposes would be made after the 9/15 deadline so wouldn't show on the 2006 Schedule B (or the EZ); but could she take these deductions for 404 purposes on her 2006 return?

[FAPInJax]

I believe the answer is yes. It will create a different asset value next year for 404 / 412 because of the deducted contributions which have not gone through the Schedule B.

[SoCalActuary]

But this will change the compensation for 2006. Unless your valuation is at the beginning of year, or your client is well in excess of 401a17 limits, you will need to review the valuation you just completed.

Maybe this is not a problem, but it will affect your pay history for the 2007 valuation as well.

[tymesup]

But this will change the compensation for 2006. Unless your valuation is at the beginning of year, or your client is well in excess of 401a17 limits, you will need to review the valuation you just completed.

Maybe this is not a problem, but it will affect your pay history for the 2007 valuation as well.

Hope you don't get stuck with a valuation where the deduction depends on the compensation, which depends on the deduction, ...

[mwyatt]

BOY val, prior comp history makes this issue moot.

[tymesup]

So there are at least two practitioners - you and SoCal - who use BOY for sole practitioners. Maybe we can do that in our office, too.

[SoCalActuary]

Actually, I will consider it more often now, but very rarely have I used beginning of year valuations for SP's & partners.

You still have to face the risk of redoing the valuation if facts change.

And yes, I often encounter the problem of "zero-out" between SP compensation and contributions.

It used to be easy with individual aggregate funding, but now with unit credit funding methods and a range of allowable payments,

we end up doing multiple valuations with different compensation levels to get a valid range of contributions.

Once we know the final deduction taken, we can finish the valuation.

[mwyatt]

Actually, since PPA put the 415 high 3 Year limit back to service, not participation, once you get those 3 consecutive years over the dollar limit that issue becomes irrelevant.

[SoCalActuary]

In California, we still have a small number of clients who are not at the 415 limit, nor the 401a17 limit, so we still have to do some work. Pity.