Employer withdrawal of profit sharing contribuiton?

[Anonymoose]

A self employed taxpayer with 4 employees made monthly conribuitons to the profit sharing plan during 2010. Now that his schedule C is being prepared, he no longer wants to make/deduct a profit sharing contrib for 2010 (Sch C income less than expected, cost to cover employees more than expected, large amount of tax due, bad economy). Can he withdraw the 2010 contributions plus earnings without a penalty?

[Jim Norman]

No.

[Guest Sieve]

He can't withdraw the contribution at all. Forget about the penalty part entirely.

Possible that it could be considered an advanced contribution for 2011, but then it would be subject to a 2010 excise tax.

[Mike Preston]

While the other answers are no doubt correct, there may be limited circumstances where some, or all, of the amounts deposited may be withdrawn. The plan sponsor needs to ask someone familiar with the rules. For example, if this was the first year of the plan and the plan had a provision conditioning the first year's contribution on it being deductible and the Schedule C income was zero before consideration of the contribution then in that circumstance the monies most likely could be withdrawn. There are other circumstances that may lead to partial withdrawal which are based on the very difficult determination as to whether any of the contributions constitute mistake-in-fact contributions.

A pension lawyer is your best bet.