New Plan for 2008 using 12/31/07 to 12/30/08 plan year

[YankeeFan]

Can someone please confirm that it would be permissible to setup a new one participant defined benefit plan for a sole proprietor effective 12/31/07 with a 12/31/07 to 12/30/08 plan year and use the pre-PPA funding rules for the first year. The deduction for the plan year ending 12/30/08 would be taken on the 2008 tax return. This would avoid the use of the PPA funding rules effective in 2008 and result in a larger contribution for the first year.

[JAY21]

Works for me, as far as I know nothing has changed on the deduction rules that basically just require the tax and plan year overlap at least 1 day.

[YankeeFan]

Thanks for the response. Does anyone see any issues if the plan were designed with a 12/31/07 to 12/30/08 plan year?

[Guest Sieve]

As far as I know, there is no problem with using any 12-month year for the plan year--business reason is not necessary. (Having grown up in the 1950s and '60s in an AL town, it was not easy responding to a Yankee fan!!! But, I'm an adult now, and old grudges must die -- NOT!!)

[YankeeFan]

As far as I know, there is no problem with using any 12-month year for the plan year--business reason is not necessary. (Having grown up in the 1950s and '60s in an AL town, it was not easy responding to a Yankee fan!!! But, I'm an adult now, and old grudges must die -- NOT!!)

Thank you for the response . I know that old grudges die hard but I appreciate that you can overlook that I'm a Yankee fan. I'm not the arrogant Yankee fan I once was. I've been humbled a bit this past year as a result of the Yankees missing the playoffs after 13 consecutive appearences. However, I should be back to my old self once the Yankees spend a few hundred million dollars this winter reshaping their pitching rotation.

[tymesup]

Suppose you do increase the deduction for 2008 by using a 12/31/07 BOY. Your contribution will be reduced by a corresponding amount for 2009. Is this OK?

If this is not an issue, would you get a bigger deduction for 2008 by using 150% of Funding Target by granting past service and getting to the 415 limit on 1/1/08?

If you're willing to go out on a limb, how about establishing the plan effective 12/31/08? Your participant(s) are a year older, so your deduction should be larger. The fly in the ointment is whether the 2008 tax deduction can be based on a 12/31/08-12/30/09 plan year. It was OK under the 404 -14 reg; whether this is rescinded due to PPA is anybody's guess.