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Sole Proprietor's Combo: DB Plan Plus 401(k) Plan
BenefitsLink Message BoardsLink to more items from this source
Aug. 10, 2021

"DB Plan adopted for lawyer back in 2010 and used prior service to establish high-3 EI comp, which is $175,000.

Current yr is 2020, EI after 'salary'of $80,000 and before pension=$200,000.

2020 DB MRC is $225,000. The company contributes 200,000 by due date for 2020 tax year (4-14-21) and $25,000 after 4-15-2021.

Company will deduct $200,000 for 2020 and $25,000 for 2021 under 404(a)(8), with the total $225,000 contribution reported on 2020 SB. (covered at '16 EA meeting.) This will reduce the 2020 taxable Earned Income (after pension deduction) for 2020 to zero.

Nevertheless CPA recommended client to also make a 25% profit sharing contribution for 2020 based on the estimated EI of $200,000 and pay and deduct it for 2021.

Questions: The MRC is based on the original high 3 EI per the plan doc and unrelated to 2020 EI, at least as far as pension contribution is concerned. But how does this impact the current EI for DC benefit computations? Wouldn't the EI be zero and therefore no DC contribution possible?"

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