Cash Balance plan for S-corp

[Guest philw]

Setting up a cash balance plan for an S-corp with 3 partners. Just want to confirm how they take the deduction for their own contribution---is it taken on their personal 1040 or the K-1? I understand the other contributiuons for the non-owner employees would be shown on the corporate return form 1120s.

Also, if one of the partners in the s-corp is currently paying off a note to one of the other partners (as part of a buy-out), could he make his interest payment to the other partner through the cash balance plan? If so, would he also deduct that on his own return even though the contribution went into the other partner's account?

thanks,

[ETA Consulting LLC]

Since the sponsor is incorporated, the deduction for employer contributions would be taken in the same manner as the non-owner employees; against company profits. There will be no individual deductions since they are not 'self-employed' (e.g. taxed as a partnership). Each owner's benefit base will be the amount actually received as W-2. There is no circular calculation.

Good Luck!

[SoCalActuary]

Since you stated this is a corporation with an "S election", the pay is W-2, and the pension expense is for the plan as a whole.

However, it is possible to have internal cost allocations within the company where an existing owner agrees to a greater cash balance benefit instead of stock redemption.

You need a good corporate lawyer with tax knowledge to make this work correctly.

If the corporation was an LLC, the answer might be different. Some Limited Liability Corporations elect to be taxed as partnerships, so the pension costs do flow through to 1040.

[Guest philw]

Since the sponsor is incorporated, the deduction for employer contributions would be taken in the same manner as the non-owner employees; against company profits. There will be no individual deductions since they are not 'self-employed' (e.g. taxed as a partnership). Each owner's benefit base will be the amount actually received as W-2. There is no circular calculation.

Good Luck!

Great Feedback! Thanks for your input.