Too late for 2009 profit sharing?

[austin3515]

Client (calendar year plan) never funded their 2009 profit sharing contribution that we had calculated, but they want to (they had much higher compensation that year, and now they have plenty of money in the bank and want to put as much of that as possible towards retirement). In this case, there are no 415 issues for anyone involved (they all have plenty of comp in 2010 and will also in 2011). I am also aware that they client probalby needs to am,end their 2009 tax return, and this contribution, if made will need to be deducted in 2011 (so I need to be careful about how I treat the 2011 contribution for max deductible issues).

-Is anything stopping me from allocating profit sharing contributions today based on 2009 compensation and using 2009 compensation for cross testing?

-I know the contriubtions will be deductible in 2011 (right?)

-I assume they will also be subject to the 2011 415 limits,.

Lots of other things have specific dates, but there is not one that I am aware of that relates to when a contriubtion must be made to be included in rate group testing for a particular year. Can anyone point me to reg that says I can't do this?

[rcline46]

First, document probably states allocations are on current year pay, unless it is a new comp with everyone in their own group. If the former you need an amendment which probably puts you into 2011 for the allocation. Don't have 2011 comps yet so cannot do testing. Oh my this will be a problem.

[austin3515]

Why would the document say allocations are on current year pay? We're always at least one year behind. And I;ve never seen allocation reference today's date in determining what compensation will be?

[Belgarath]

I'm sure I'm missing something, but could you consider this a corrective contribution, and therefore under 1.415©-1(b)(6)(ii)(A), consider it for 415 purposes as a 2009 allocation? I agree that if they took a deduction for it already, they have to amend prior tax return to deduct for 2011. Depending upon how their legal counsel interprets things (opinions vary) the corporate resolution stating a contribution of (x) for 2009 may be considered an enforceable obligation. So if that's the case, then your contribution was already calculated for 2009, based upon 2009 compensation, and the employer is just now making it.

Or, are you contemplating an increased contribution now instead of what was calculated for 2009, and presumably memorialized in a corporate resoultion?

[austin3515]

They want to fund the numbers we ran for them in September 2010. We esent them the resolution because it was new comp, which I assume was executed, so you've raised a very interesting avenue...

But aside from all that, do you agree that I can use 2009 comp for testing? Everyone seems to be tying the answer to deduction limits and 415 limits, but both of those rules are not on point with my primary question. At least not in my opinion...

[rcline46]

The contribution will be an annual addition for 2010. At least I think that can be supported. And thank goodness it is already a new comp plan (everyone in own group I hope). Since an annual addition in 2010 (or 2011 if you want) then your testing comp must be from the year of the annual addition. Stated differently, how can you test annual additions on year Y pay, and 401(a)(14) on year Z pay?

As for the idea of a corrective contribution..... since it is a profit sharing plan (discretionary contribution plan) it makes me nervous. Maybe it was in a plan checking account and you were slow to get it (vs a corporate checking account)?

[austin3515]

I would think it would have to be the year DEPOSTED since the original grace period was missed. What's the basis for calling it 2010?

And most importantly, what's your basis for suggesting that it must be allocated in the same year for which it is counted for 415 purposes? IF there is a direct answer to that question, no one will be happier than me, as I've been frustrated by this question for a long time!

[rcline46]

You said it was a new comp plan - who cares how the allocation was determined. Its 415 and 401 that are the concern (and maybe 410). To use it for 2010, just say it is a 2010 contribution - you have until the due date of the tax return to deposit it, even if 2011. Or call it a 2011 contribution. Under 404 it certainly is not a 2009 contribution.

Once you name the year, you have to use that year's compensation for testing because that is the year the funds are allocated.

[austin3515]

You said it was a new comp plan - who cares how the allocation was determined

- prototype documetns require reasonable classification (don;'t get me started, I wish we had done the VS doc).. But also, in my example, the comp from 2009 for the owners was MUCH higher, so thet esting won't work out so good if I cannot use the 2009 comp for testing.

[rcline46]

Austin, I feel your pain, I really do. (having been in the business for over 35 years, I really do!)

My advice is reallocate based on whichever 'new' year it will be for. That is if the client cannot show that it was segregated before 10/15/10 (30 days after tax return) but you just were not given the information at that time.

I actually have the same problem right now that I am working on!

[austin3515]

I hear what you're saying, but I was hoping for something concrete... Until I get that, there will always be this nagging thing about "why can't I do this??."

But I hear you, and since universally NO ONE thinks this is a good idea, far be it from me to go down this perilous path; but if you can button this down for me with a reg that says I can't do it, that would be AWESOME~

[rcline46]

COrbel prototype doc - 4.2 - contribution made after year end must be identified as to the year it belongs. No DATE given.

Austin, it may just be possible that you can do 415 in one year and 401(a)(4) in another! I cannot find anything in the document to prevent it. However, I am not going to search the regs.

My issue was with a 403(b) plan, and after reading the doc carefully, we are ok!