Solo DB Situation

[frizzyguy]

I just recieved a call from a sole prop solo DB prospect who is having a really good year (900k) and wants to max his 2012 deduction. Unfortunately, he already contributed 50k for 2012 in 2012 to a solo(k) plan. Because 50k is over 6% of pay, he would be limited to 31% of pay on a combined basis. I can't think of a legitimate way to get that money out in a manner that won't get him in trouble so he can open a DB plan and get the full DB maximum.

Besides the discussion of "is he going for a one year deduction or is it indefinite" which I already had with him, is there anyway to make this work. I'm lost.

[AndyH]

I just recieved a call from a sole prop solo DB prospect who is having a really good year (900k) and wants to max his 2012 deduction. Unfortunately, he already contributed 50k for 2012 in 2012 to a solo(k) plan. Because 60k is over 6% of pay, he would be limited to 31% of pay on a combined basis. I can't think of a legitimate way to get that money out in a manner that won't get him in trouble so he can open a DB plan and get the full DB maximum.

Besides the discussion of "is he going for a one year deduction or is it indefinite" which I already had with him, is there anyway to make this work. I'm lost.

Have him hire somebody so he becomes covered by PBGC and the combined deduction rules become N/A?

[Andy the Actuary]

I just recieved a call from a sole prop solo DB prospect who is having a really good year (900k) and wants to max his 2012 deduction. Unfortunately, he already contributed 50k for 2012 in 2012 to a solo(k) plan. Because 60k is over 6% of pay, he would be limited to 31% of pay on a combined basis. I can't think of a legitimate way to get that money out in a manner that won't get him in trouble so he can open a DB plan and get the full DB maximum.

Besides the discussion of "is he going for a one year deduction or is it indefinite" which I already had with him, is there anyway to make this work. I'm lost.

Any room in 2011 to credit any of the 50K to 2011, assuming the timing would facilitate?

[frizzyguy]

Have him hire somebody so he becomes covered by PBGC and the combined deduction rules become N/A?

Haha, now you're thinking! They aren't looking to ever add to staff so I think the payroll for that participant would probably be more than the tax savings. I am going to start telling my husband-wife plans that if they get divorced they could get a larger deduction. Haha.

Any room in 2011 to credit any of the 50K to 2011, assuming the timing would facilitate?

No, they maxed out Profit Sharing in 2011.

[ScottR]

The combined-plan limit would be 31% of $250k PLUS the $17k deferral. It's not great, but there's still room for a significant DB contribution for 2012.

More importantly, setting up a DBP this year will give him 2 YOP at the end of 2013. If you amend the DBP to take his AB up to 415 limits in 2013, it should open up room for a very large DB contribution next year. Just make sure he limits his PS contribution to 6% of pay (plus deferral).

... Scott

[shERPA]

Hire an adult child for 1 hour of service, no plan eligibility - PBGC.