Contribution To Plan - Allowable Form?

[emmetttrudy]

Is there an issue with a sole proprietor transferring stock in-kind as a contribution to his Db Plan? He has two accounts with the same vendor. One is the trust for the Plan. Rather than sell the stock in the other account and then contribute the money to the Plan and re-buy the same stock, he wants to transfer the shares over. Is there an issue with this? Does the contribution need to be cash?

[emmetttrudy]

Ok, I think I just found the answer to my own question. It appears a contribution of stock "in-kind" is a PT.

[SoCalActuary]

This is a party-in-interest transaction and a tax issue.

GM does this type of thing because they lawyer up and ask for advance approval.

But it is also a sale and a purchase. The taxpayer is responsible for the tax treatment of the stock sale to the plan. The plan will report the stock at its current market value.

So the client is simply trying to avoid transaction charges for the risk of a big PIT penalty.

[Andy the Actuary]

Agree. You can only make in-kind contributions for non-required contributions such as for a discretionary profit sharing contribution. Thus, you can't for DB or DC plans that stipulate a contribution.