Deductible limit and excess annual additions

[cpc0506]

Hello.  We have a client - 2 person (solo-k husband and wife) with a DC plan . Each deferred 18,000 and at the same time client contributed $5,000 match to their accounts. Well, we come to find that their gross compensation for 2016 was 19,500 each. 

So we have 2 limit issues.  Each has excess annual additions but the client also exceeded their maximum allowable deduction of 25% of eligible compensation by $250. Which problem is taken care of first?  Do we forfeit $125 of match from each participant's match account and then determine the excess annual additions?  Or the other way around?

 We are so somewhat lucky as wife is over 50 so we can reclassify her excess as 'catch-up ', but not so for the husband.  

My sense is you fix the deduction limit first, but I thought that once the employer funds are assets of the plan they cannot be removed.

Please advise. 

 

 

 

 

[ETA Consulting LLC]

If the actual deposits of the $5K to each account were made after December 31st, then I'd consider the excess amount to be a deposit for the new year. 

Other than that, you'd fix 415 first. I'm not quite sure on the statutory authority to distribute funds merely because they are not deductible (which is to the point you made). 

Good Luck