Calculating 415 Limit for SP with QRP allocations + 401k

I have a SOLE PROPRIETOR issue regarding 415 and shutting down the QRP Plan. There are no employees. The SP has Earned Income of $100,000 for 2021. He has a QRP profit sharing plan consisting of an asset transfer from an overfunded DB that was terminated in the prior year. There is also a separate 401(k) plan and owner wants to make a $15,000 401k deferral plus allocate the remaining assets in the QRP and terminate that Plan this year. The QRP has  $43,000 in unallocated assets in the transferred assets suspense account. The Earned Income is $100,000 and there are several issues:

1. Can the $43,000 be allocated to the SP this year? The plan doc  for the QRP ( FIS ) states only the minimum amount to allocate under the 7 year rule.  

2. If the $43,000 can be allocated in the current year, how do you determine the 415 limitation? If it was a formula based  percentage allocation like 20% of pay, it is easy to compute the portion that is the taxable compensation, portion eg ( 1-.25/1.25) and thus compute the 415 limit. I don't see how to split the $100,000 with the QRP allocation to compute the 415 limit.

Comments appreciated.

I will take a shot at this

Assume not age 50.

100k net schedule, could be even lower, say 68k before 1/2 self employment adjustment.

43k non deductible QRP allocation as profit sharing plus 15k as deductible 401k deferral. Total is 58k which is the 415c limit for DC plans.

Done.

But wouldn't that amount be way higher than the deduction limit for Employer contributions?

Gross $100k, then after SE, comp around $92k.

Then only about $18,400 given the 25% limit.

QRP allocation has nothing to do with deduction only for 415c limit unless you are combining deductible contribution with QRP 

This is easy if you have no rank and file employees since testing might be an issue. 

I agree with Jakyasar. The allocation from the QRP goes against the 415 limit but but doesn't effect the deductible limit or the sole-proprietor's comp as that is all money that was deducted in prior years. While not 100% analogous I like to think of the QRP allocation similar to a reallocated forfeiture.

My bad.  Good point, guys.

I agree with Lou with thinking of the QRP allocation like a forfeiture reallocation, it is part of the annual addition limit.  I am still stuck with computing the 415 max limit. The net number after the 162 deduction is $92935. so the lesser of $92,935 or $58000 is $58000, which is the 415 limit, right?

The 401k deferral is $15,000 and the forfeiture is $43,000, thus using up the 415 limit.

But something here is bothering me about this. The plan doc seems to say that is "earned Income" is NESE reduced by the 401k deferral, that makes it $77,935 and again the remaining limit is still $58,000. But the 401(k) deferral is not a deduction, rather a salary deferral election. The actual taxable "salary" is $77,935 because 401k is a legal fiction in which we treat the deferral as a plan deduction, not a deferral of pay.

I wanted to express the earned income in terms of the deduction computation, eg, solve 2 equations, S +C = Earned Income and C=f(S) = $43,000. Solving, S= 92935-43000 =$49,935, which is less than $58,000 so 415 limit is $49935. Which is right?

My concern is I might be blowing 415 by the approach of using $43,000 forfeiture allocation plus $15,000=$58,000.  Where am I off on this? I hope someone can clear this up for us all.

BG5150--we're addressing the 415 limitation, which I believe is $58,000. The $43,000 is not a contribution so not subject to the 25% cap. It is a "forfeiture reallocation or just an internal allocation, regarding less, the annual addition limit is $15,000 401k + $43,000 allocation=$58,000.

Why are you expressing the net earned income in terms of deduction? The only deduction you are looking at is the deferral, the rest is simply for 415 limit purposes only.

The sum of deferral plus QRP allocation is 58k and you have enough of schedule c income to support this.

Assume you have 58k is w-2 of which 15k is deferral, balance 43k is from QRP thus 58k 415c limit. No deduction other than deferral.

Am I missing something here?

So basically you are saying, it is a 415 limit issue, not a deduction issue, because the $43,000 is not a deduction and can not be deducted. The sum of the annual additions -- the 401k deferral plus the QRP allocation --$43,000 + $15,000 =$58,000, which is the 415 limit. ok Agreed!