Violating 25% deductibiltiy limit--remedy?

[BG5150]

Sole prop 401(k) plan. Owner is sole participant. He makes $100,000. Defers $18,000. Deposits $30,000 in PS.

He's $5,000 over 404(a)3 deduction limit.

What is the remedy?

[Belgarath]

Did he deposit it all DURING 2015? If so, pay the penalty tax for a nondeductible contribution. If $5,000 or more deposited DURING 2016, then just deduct the deductible amount for 2015, and count the rest as a contribution for 2016.

Doubtful that it would qualify for a "mistake of fact."

[Mike Preston]

When was the $30k deposited?

[BG5150]

He deposited about $25,000 in early 2016 for 2015. So I guess I can treat the "extra" as a 2016 contribution.

let's say he put it in in 2015. Is there just a tax? The money doesn't come out at all?

Do we pay the tax with a 5330?

[Belgarath]

To your three questions: yes, 10% of the nondeductible amount. Correct - stays in plan. Yes.

[K2retire]

If I remember correctly, it also lowers the deductible amount available for 2016.

[ESOP Guy]

If I remember correctly, it also lowers the deductible amount available for 2016.

Or slightly more accurately you have to add the 2015 excess to any amount contributed for 2016 to see if over the 2016 limit. If still over the limit you pay the excise tax again.

So if they put in exactly 25% for 2016 you would pay another year's excise tax on the over contribution amount.

[BG5150]

Upon closer inspection:

He put in $10,000 in 2015.

He put in $25,000 for 2015 in February of 2016.

I think he is okay for 2015 and we will book the other $10,000 as a 2016 contribution. He will have $25,000 left in 2016, assuming he has income levels that could support it.

[Trekker]

A corporation failed to apply for extension for the 2015 year but made the $100,000 contribution anyway in August 2016 (thinking the administrator had filed for extension).

So none of the $100K is deductible for 2015 year. When computing Sec. 4972 excise tax - is the tax on the entire $100K or just what would have exceeded the amount allowed under Sec. 404 if the contribution had been made timely? In this case, the $100K was under the 404 dollar limit.

I think I know the answer but hope someone will change my mind.

Just concerned with excise tax in this post. We are carrying the $100K to 2016.

Thanks.

[Belgarath]

Perhaps I'm misreading your question, but I'm confused. Since all was contributed in 2016, there shouldn't be any excise tax for 2015. (Now, they may have to re-file their 2015 tax return if they took a deduction for a contribution that wasn't made in time, but that's a separate issue.)

They will presumably deduct it when they file their 2016 return.

[Trekker]

Ah, the light bulb came on, thanks to you, Belgarath. We were trying to create an issue that does not exist.

Happy Holidays!