Combined Deduction Limit

[emmetttrudy]

Two partners have a DB and 401k Plan. Let's say each have $150,000 in self employment income before any deduction for the DB contribution. They make a $200,000 contribution to the DB plan, which they split the deduction for.

They both alos make the full 401k deferral contribution to the 401k PSP. What is their limit for a profit sharing contribution. Is it 6% of compensation after deducting the DB contribution and 1/2 self employment income tax? Ie 6% of $150,000-$100,000-1/2 SE tax? Or is it 6% of SE income before any deductions?

[Andy the Actuary]

It may be .06/1.06 x(150,000 - 100,000 - 1/2 x SSE) since I would suspect the compensation would have to be reduced by the contribution itself. Wouldn't you make a similar calculation if forgetting the DB plan, you simply had a 15% profit sharing contribution? I.e., you would multiply Earnings less 1/2 x SSE by .15 /1.15?

[emmetttrudy]

It may be .06/1.06 x(150,000 - 100,000 - 1/2 x SSE) since I would suspect the compensation would have to be reduced by the contribution itself. Wouldn't you make a similar calculation if forgetting the DB plan, you simply had a 15% profit sharing contribution? I.e., you would multiply Earnings less 1/2 x SSE by .15 /1.15?

i believe that is correct. and employee deferrals do no change the calculation at all, right? the comp is only reduced by employer contributiosns.

[DMcGovern]

It may be .06/1.06 x(150,000 - 100,000 - 1/2 x SSE) since I would suspect the compensation would have to be reduced by the contribution itself. Wouldn't you make a similar calculation if forgetting the DB plan, you simply had a 15% profit sharing contribution? I.e., you would multiply Earnings less 1/2 x SSE by .15 /1.15?

i believe that is correct. and employee deferrals do no change the calculation at all, right? the comp is only reduced by employer contributiosns.

If I remember correctly (don't always trust my memory these days! ), self employed income is reduced by deferrals of other employees, but not their own deferrals. Their deferrals are subtracted from the adjusted earned income to determine their taxable income.

[SoCalActuary]

It may be .06/1.06 x(150,000 - 100,000 - 1/2 x SSE) since I would suspect the compensation would have to be reduced by the contribution itself. Wouldn't you make a similar calculation if forgetting the DB plan, you simply had a 15% profit sharing contribution? I.e., you would multiply Earnings less 1/2 x SSE by .15 /1.15?

i believe that is correct. and employee deferrals do no change the calculation at all, right? the comp is only reduced by employer contributiosns.

If I remember correctly (don't always trust my memory these days! ), self employed income is reduced by deferrals of other employees, but not their own deferrals. Their deferrals are subtracted from the adjusted earned income to determine their taxable income.

Deferrals of others - not an issue at all. They were included in the wages line on the Schedule C.

[AndyH]

Two partners have a DB and 401k Plan. Let's say each have $150,000 in self employment income before any deduction for the DB contribution. They make a $200,000 contribution to the DB plan, which they split the deduction for.

They both alos make the full 401k deferral contribution to the 401k PSP. What is their limit for a profit sharing contribution. Is it 6% of compensation after deducting the DB contribution and 1/2 self employment income tax? Ie 6% of $150,000-$100,000-1/2 SE tax? Or is it 6% of SE income before any deductions?

It is 6% of ($50,000-1/2 SE tax)/1.06 (as AtA said)