402(g) limit

[Guest JPIngold]

I have a individual taxpayer client who is being audited. He works for a company that sponsors a 401(k) plan (in which he has no ownership). He also has a 50/50 partnership with his brother and that partnership sponsors a plain profit-sharing plan. The partnership and the company are not related in any form or fashion.

The taxpayer maximizes his 401(k) contribution and that is on his W-2. The partnership declares a $46,000 contribution for him and that passes through to him on his K-1 to go to his 1040, page 1.

The agent is saying that he has made an excessive contribution under 402(g) because he can't deduct $46,000 on page 1 of his tax return AND have $15,500 (this was 2008) on his W-2 as an elective deferral. She says that without a 457 plan this isn't possible. I don't understand her position. Am I missing something??? Unless she is saying the partnership is sponsoring a CODA (which she doesn't seem to be implying), I don't see how we have exceeded the 402(g) limit.

Any help is much appreciated!!!!

James

[PensionPro]

Obviously there is no 402(g) violation. There is no 415 violation since the employers are unrelated. The agent's position is unclear at best.

[Guest JPIngold]

That was my point also ... no possible 415 violation as that is an "employer" limit and no 402(g) limit as there is only one elective deferral plan involved. Thanks for the reply.

I'd love a bunch of "ditto" replies so I can tell the agent that we are all confused by her position.

[PensionPro]

Maybe the agent auditing the individual taxpayer has limited familiarity with qualified plan rules.

[Guest JPIngold]

Maybe the agent auditing the individual taxpayer has limited familiarity with qualified plan rules.

I think that is the case. She keeps pointing to the fact it is a page 1 deduction and thus it must be a SIMPLE plan or something like that. Well....... no, not necessarily.

I know there is a rule with 403(b) plans and how that limit can be affected by other plans, but I believe that only comes into play when ownership is greater than 50% ....... but that would not have any bearing on this issue.

I don't know .... I asked her to put her position in writing with code and reg references so I can try and pinpoint what she is relying on.

[jpod]

Don't waste your time. Ask for the agent's supervisor.

[goldtpa]

ditto

[Bird]

ditto. The 15500 and 46000 entries wouldn't be possible if he was only covered by one DC plan, but with two companies/plans it is ok.

[Jim Chad]

Ditto

[30Rock]

I think there is an exception - even tho they are not a controlled group, when there is 50% common ownership I think you aggregate the 415 limit, so his limit in both plans is really $46,000 (2008) or $49,000 (2009). Need to check out 415 aggregation and 50% controlled group status

[Guest JPIngold]

I think there is an exception - even tho they are not a controlled group, when there is 50% common ownership I think you aggregate the 415 limit, so his limit in both plans is really $46,000 (2008) or $49,000 (2009). Need to check out 415 aggregation and 50% controlled group status

He has absolutely NO ownership in the company sponsoring the 401(k) plan, so that rule shouldn't come into play. Thanks for the thought as I wanted to make sure I wasn't overlooking anything before I respond to the agent.

[30Rock]

Oh yes I see that now, I agree. Separate 415 limits should apply

[BG5150]

" "

[Guest Michael Scott]

That's what she said.

I mean . . . ditto.