Profit Sharing Plan/Money Purchase Plan Compensation

[Guest duckweed]

My husband has an S Corp and is 100% shareholder. The corporation has always put 15% of his salary in the Profit Sharing Plan and 10% into the Money Purchase Plan. On the 2010 W-2 this year we are also adding in health insurance premiums in box 1 (which will be a considerable increase). The other boxes will have just the straight salary total. Can we make more contributions to the plans based on the higher amount or just use the salary portion. I have talked to TD Ameritrade (who handles the plan) and they told us to talk to a tax accountant. The tax accountant said to talk to TD Ameritrade because they would know what is in the plan. This has gone on back and forth. I have looked over the plan documents and find no clear definition of what is considered compensation for us. Any suggestions?

[Bill Presson]

Without looking at the plan document itself, it's almost impossible to tell you.

[K2retire]

Find the documents that established each plan. There should be a section that define what compensation to use. It might include a reference to an Internal Revenue Code section that will not be clear to you, but people on this board or your tax accountant can help explain that.

[Kevin C]

When you get that issue resolved, you should also consider talking to whoever handles your plans about why you still have two plans. The deduction limit for profit sharing plans increased to 25% of covered payroll for plan years starting in 2002. With that change, there is no need to maintain both a MP and PS plan. If your PS Plan doesn't allow 401(k) contributions, you should ask if adding that feature would benefit your situation.