Sole Proprietor excess contribution

[Dinosaur]

For a Sole Proprietor DB Plan, the client deposits $40,000 into the plan during 2012. His Schedule C less 1/2 self employment tax is $35,000. The minimum required contribution for 2012 was $0. The calculated maximum contribution is in excess of $100,000. He has no other qualified plans.

I believe there is an exception under section 4972© for the 10% excise tax if the client deposits a contribution in excess of the Schedule C to satisfy the minimum required contribution. But the minimum is $0 in this case.

Is this client subject to the 10% excise tax?

There is mention about the full funding limitation in section 4972. Is this applicable?

[ETA Consulting LLC]

Not sure, but would like to 'ask' this additional question as a potential answer. It would seem as if the "maximum contribution" would be totally undermined if a 10% penalty would apply if you were to make it. I guess my question would be: What is the purpose of the maximum contribution if the penalty would apply?

[ScottR]

I thought the 10% penalty no longer applies to nondeductible DB contributions...

4972©(7)Defined benefit plan exception.—

In determining the amount of nondeductible contributions for any taxable year, an employer may elect for such year not to take into account any contributions to a defined benefit plan except, in the case of a multiemployer plan, to the extent that such contributions exceed the full-funding limitation (as defined in section 431©(6)). For purposes of this paragraph, the deductible limits under section 404(a)(7) shall first be applied to amounts contributed to defined contribution plans and then to amounts described in this paragraph. If an employer makes an election under this paragraph for a taxable year, paragraph (6) shall not apply to such employer for such taxable year.

.. Scott