Contribution from Stock Market

[Madison71]

I have a DB plan with a sole proprietor. He earned way over the max. comp. limits for the year. He contributed much of his income into the stock market this year and wants to take the money he contributed (paying taxes on any gains) and contribute it to his defined benefit plan. Any issues with this? I know if it was money contributed from prior years you would have issues, but this is money he earned duing the year and instead of putting hit into a bank account he invested the money. I have an actuary telling me it is ok....I'm not sure.

[Lou S.]

From what you are describing, I don't see any problems.

[Madison71]

Thanks Lou

[david rigby]

He contributed much of his income into the stock market this year and wants to take the money he contributed (paying taxes on any gains) and contribute it to his defined benefit plan.

You don't "contribute" to the stock market; you invest in the stock market. Contributions to the DB plan are from compensation/corporate profits; limits are based on IRC 412/430 (minimum) and 404 (maximum). I see no relevance to the source of the cash flow, as long as the limits are observed.

[Madison71]

Thanks David - wrong phrasing...understand the deduction rules, but concerned about the source of the money. Wanted to make sure. Thanks again.

[SoCalActuary]

To the OP, don't forget that those stocks are assets of the employer. If you sell the assets, creating cash/checking balances, then you have something to contribute to the retirement plan. Otherwise, you have a potential party-in-interest transaction if you just transfer the assets by re-titled registration.

[AndyH]

......and the sale of the assets may create capital gains that are then taxable, so where are you in the end? In need of an accountant/tax planner I submit.