deduction vs 5330 - PS plan

Hi

If 110k is contributed during 2019 and only 108k is deducted (CPA is not changing the deduction), is the excess 2k considered excess for 5330 penalty or can it be applied towards 2020?

Thanks

It is subject to the excise tax for 2019. 

Yes, in fact you have to use the excess tax up in 2020 or you pay the excise tax again and every year following until the excess is gone. 

This is why this mistake is so expensive.

Back in the '90s we took over a plan that was admin internally.  They had been over contributing for over 15 years.  The the ever increasing layers of the excise tax being charged year after year plus the current year's excess being added resulted in a total excise tax that would have bankrupted the company had we not found a solution.  

2 hours ago, ESOP Guy said:

It is subject to the excise tax for 2019. 

Yes, in fact you have to use the excess tax up in 2020 or you pay the excise tax again and every year following until the excess is gone. 

This is why this mistake is so expensive.

Back in the '90s we took over a plan that was admin internally.  They had been over contributing for over 15 years.  The the ever increasing layers of the excise tax being charged year after year plus the current year's excess being added resulted in a total excise tax that would have bankrupted the company had we not found a solution.  

Disagree.5330 based on deductible not deducted.

Hi

Thank you both for comments.

I need to add the fact that the overall deductible limit for 2019 for 120k. So, even though they did not exceed the deductible limit, they under deducted and will not be changing.

Based on above, is the 2k subject to any penalties? Any other issues?

My apologies as I did not make it clearer before.

Thank you

Sorry, I guess I assumed they only deducted 108k because they hit the limit not because of some other error.   The way the first question is written it didn't make sense if the 108k wasn't the limit but now I see what the writer was saying.  

If the deductible limit was above the contribution made there is no excise tax. 

And while not a huge expert on the deduction side of things no I don't think they can take the $2k in 2020.  You are allowed the deduction in the year made or up to the filing deadline of the corporate (or other tax return) for that year.  So you can deduct a contribution made in the next year if it qualifies.   I know of no provision that allows you to deduct a contribution made in the past.   If the CPA refuses to amend the prior year's tax return I think the deduction is lost.  I am happy to be told otherwise. 

Agree with ESOP Guy. There's no penalty for choosing to not deduct an eligible expense.

ESOP Guy & Bill, thank you both for your comments

Actually one follow up, what happens to the 2k, is it allocated in 2019 or 2020?

Thank you

1 minute ago, Jakyasar said:

Actually one follow up, what happens to the 2k, is it allocated in 2019 or 2020?

Thank you

It should be allocated as long as it's not violating any other limits. Doesn't matter whether it was deducted or not. They could choose to not deduct anything.

No 415(c) limits are violated on both the dollar limit as well as 100% compensation limit.

The problem of course is in the future when it comes to distributions.

Trying to get the CPA change the tax return.

Thank you for your time and input.

17 minutes ago, Jakyasar said:

No 415(c) limits are violated on both the dollar limit as well as 100% compensation limit.

The problem of course is in the future when it comes to distributions.

Trying to get the CPA change the tax return.

Thank you for your time and input.

What is the issue with distributions?

If I recall correctly, it is a non deductible amount being subject to any taxation/RMD in the future upon distributions/terminations/rollovers. A topic for another time.

It is clearly allocated in the year of deposit.  

I am not sure you aren't confusing after-tax or Roth money that isn't deducted and employer discretionary that they didn't deduct. 

This isn't after-tax money in my mind this is stupid money that is put into the plan after-tax that people have to treat as pre-tax money when it comes out.  

1 hour ago, ESOP Guy said:

It is clearly allocated in the year of deposit.  

I am not sure you aren't confusing after-tax or Roth money that isn't deducted and employer discretionary that they didn't deduct. 

This isn't after-tax money in my mind this is stupid money that is put into the plan after-tax that people have to treat as pre-tax money when it comes out.  

It is what it is.

Indeed

Thank you all