415 Excess & Deductible Limit

[Guest Phil L]

If a participant in a stand alone DC plan has annual additions in excess of the 415 limit, it seems clear that Code Section 404(j) and IRS Notice 83-10 do NOT permit the employer to take a tax deduction for the amounts in excess of the 415 limit.

Assume the primary limit under Section 404 is $100,000 and the employer makes a profit sharing contribution of $25,000 in order to bring total contributions to exactly $100,000. Further assume that an employee has a $1,000 415 excess after the profit sharing is allocated and before the 415 test is computed.

If the employer refunded the $1,000 of salary deferral contributions as a 415 excess, would you agree that the company could only deduct $99,000 on its corporate tax return?

Is the 415 excess deductible under a different Code Section? I find it hard to believe it simply wouldn't be deductible at all.

Thanks.

[rcline46]

This is fun. First, your document probably has something like a '415 Excess Account' in it. Look for it, read it. Very enlightning.

Second, the deferrals were in first, so you cannot refund the deferrals.

THird, your document may require excesses over 415 to be reallocated to other participants, so one employee almost never actually exceeds 415 (unless there is a MPPP hiding).

Fourth - 404 and 415 have a tenuous relationship at best. Essentially 404 is the sum of the 415 limits for all eligible employees. Just because the ALLOCATION to ONE employee exceeds that employee's 415 does not mean the TOTAL contribution exceeds the 404 limits.

Always think this way - Allocations, contributions, and deductions ARE JUST NOT RELATED TO EACH OTHER. It makes your life easier.

[QDROphile]

Yes, do look at your plan document. It may provide that elective deferrals are distributed to comply with the limits.