Max profit sharing/deferrals/catchup for Doctor who sells practice mid-year

[Pammie57]

We have a doctor client who went from practicing as a sole proprietor to becoming an employee of a larger medical practice effective June 1.

His net earned income through May 31 is estimated at 171,000.

So for 2016 - I am pretty sure he can only defer the $24000 (over age 50) between the two employers" since that is an individual calendar year limit.

So my real question is:

If he maxes out the profit sharing contribution in his practice.(in effect through May 31) ...and contributes PS of $35000 for himself ( there is NO match)....does that have any bearing on what his new employer can contribute for him as far as any profit sharing they may put into their plan? They are giving him credit for prior service in his old plan.

Opinions?

[Lou S.]

Unrelated employers. He could get the the 415 limit in both plans if he has sufficient income and both employers were so inclined.

That is to say other than the 402(g) limit which you correctly note is tied to SSN, neither employer is limited by what the other employer does.

[jpod]

If they are unrelated, he likely is better off putting $53,000 into his self-employed PS plan as a PS contribution, and then putting his $24,000 elective into his new employer's plan.

[jpod]

I guess I wasn't thinking about the 404 deduction limit, which with only $170,000 sort of knocks my idea out of the box.

[Pammie57]

Thank you for the replies. they are totally unrelated entities.

[Zoey]

I have a similar question. The company is selling mid-year. The buyer is going to continue the plan. However, the predecessor employer wants to max out the profit sharing contributions prior to the sale. (It is a new-comp formula and is discretionary.) How does this affect the successor employer's profit sharing contribution for 2016? Or does it? For instance, will he be locked into making the same (max) profit sharing contribution for his half of the year? All employees will remain, with the exception of the 2 owners. Thanks!

[BG5150]

Is there a last day rule in the plan for PS?

[Mike Preston]

If it is one plan the non-discrimination test for 2016 will take into account the entire year.

[Zoey]

Sorry I'm late in responding...We had a death in the family the morning I posted the question.

Hi BG5150, There is. But they are talking about amending it to change that before selling the company.

Hi Mike, Let's say they would pass the non-discrimination test for the entire year. Would it be allowed for the new owner to just give the safe harbor for the rest of the year?

Thanks!

[Mike Preston]

As long as the total for the year satisfies non-discrimination, sure.

[Zoey]

Thanks Mike! I tried to find something on this issue, and couldn't. But before I tell the client that they could max their profit sharing contribution for the time that they were the owner for 2016, I wanted to be sure that the new owner wasn't going to be locked into also giving the maximum profit sharing contribution for the rest of the year (time that he owned the company). There is no turnover in this company, and everyone is salaried, but I'll run the tests just to be sure. Thanks again.