Funding and Deductibility

[AdKu]

Please help me understand the rule for Funding and Deductibility.

The October 13, 2015 IRC 415(b) Examining Guidelines states, "Benefits in excess of the IRC 415 limits for any year may not be taken into account in determining the deductible limits under IRC 404 for that year.

https://www.irs.gov/irm/part4/irm_04-072-006.html

If the calculated Max. contribution is a little over $300,000 and correctly applying the above statement means the deduction is limited to $210,000 for the 2015 plan year.

Please include any section of the Code or the Regs. that go over with examples in handling the situation.

[Effen]

No. It means you can't fund for a benefit in excess of the 415 limit and take a deduction.

Single employer post PPA world - assume new hire earning $300,000 per year. Assume benefit formula is 10% per year and RA = 62. The maximum accrual for the year would be $21,000 (210,000 415 max / 10). Therefore, the TNC cannot exceed the value of 21,000 commencing at NRD. Some may argue it should be based on 1/10 of the 415 limit for the current age of the participant, but it is still the same point. Either way, I can't base the TNC on $30,000 because that would exceed the 415 limit.

It has nothing to do with the actual contribution.

[My 2 cents]

Kind of apples and oranges.

According to the original post, the calculated deduction limit was $300,000. Deduction limits are determined under IRC Section 404, and relate to how much money can be put into the plan so there will be enough funds to pay the plan benefits. If one were working with a defined contribution plan, Section 415 limits how much can be contributed in a single year, but this is a defined benefit plan.

In a defined benefit plan, Section 415 limits how much can be paid out in a single year as plan benefits.