Independent Contractor NQDC Payments Received

[TPA Bob]

Am working with an independent sales person who worked primarily with one Company for over 30 years. Received commission income that was reported to him on Form 1099-Misc. Company established a NQDC for its independent sales force years ago. My client retired triggering the NQDC payments to him. Will be paid approx 250,000 a year for 5 years. He wants to establish a defined benefit plan to shelter most if not all of the income.

I think if he was an employee of the Company and retired this income would be not be considered 415 income. Because he is self employed anyone have an opinion on whether he could set up a db plan?

Thanks to all in advance.

[jpod]

He needs to be in a trade or business to have a qualified plan, and I think the way the deduction rules work he can only deduct to the extent he has earnings from that trade or business. It appears that he is out of luck.

[TPA Bob]

After posting late last night I have looked and Code Section 401© for definition of self employed. "The term self-employed individual means, with respect to any taxable year, an individual who has earned income...... and to the extent provided in regulations prescribed by the Secretary, such term also includes......(ii) an individual who has been a self-employed individual within the meaning of the preceding sentence for any prior taxable year".

This definition would make it appear that, if the payments are treated as earned income, he would qualify as self employed and could sponsor a plan.