Deduction Split

[gregburst]

A DB plan is co-sponsored by two partnerships with identical ownership; so it's a controlled group. The high-three-year average comp that's been established came partly from partnership A and partly from partnership B. How is the deduction split? Does it matter what portion of the deduction is taken by company A versus company B?

These partnerships also sponsor a 401k plan. Does it matter which partnership takes the deduction for the safe harbor and profit sharing contributions? Or in what ratios?

Thanks,

Greg

[SoCalActuary]

You have different answers depending on the intent. For deduction purposes, all members of the controlled group are responsible for the DB plan minimum funding, but beyond that you have discretion.

The primary issue is that you are using an accounting method to split the costs. Either establish one for your situation, continue the one used in prior years, or apply to the IRS for a new accounting method.

[Calavera]

How many owners each partnership has? Are they different for each partnership? Do they have any employees besides partners?

[gregburst]

How many owners each partnership has? Are they different for each partnership? Do they have any employees besides partners?

Two partners each: husband and wife.

Yes, they have employees. Otherwise, they wouldn't have adopted a safe harbor plan.

[Calavera]

How many owners each partnership has? Are they different for each partnership? Do they have any employees besides partners?

Two partners each: husband and wife.

Yes, they have employees. Otherwise, they wouldn't have adopted a safe harbor plan.

Contributions towards employees' benefit should be deducted on 1065. Contributions towards Husband/Wife benefits should be deducted on their 1040. I think any reasonable consistent methodology will work to split the contribution between partners (H/W) and employees. Furthermore, each partnership will take deduction for their employees.

For the net earnings of H/W, the deduction on 1040 should be allocated by their ownership, unless there is a special partnership agreement stating otherwise.

See links below for an additional information:

http://www.law.cornell.edu/uscode/26/usc_s...04----000-.html

http://benefitslink.com/boards/index.php?s...37158&st=15

http://users.wfu.edu/tower/432.732class/Pa...0Allocation.ppt