Fiscal year plan, subject to pre-EGTRRA limits. Owners contributions exceed 415 limits. NHCE 415 limits not exceeded. Overall 404 deduction limit is not exceeded.

Can the company take a deduction for the entire contribution amount even if the 415 excesses cannot be allocated for PYE 2002?

If so, by what authority?

Bet the document says reallocate excess to other participants!!

Check it out, might solve YOUR problem, but make the client rather unhappy!

The document says to hold the money in suspense. So, if the excess is in suspense, can the deduction be taken before it is allocated?

That's the crux of the question.

RBeck,

Is this an individual daily valued plan? If so, I didn't think you could hold suspense accounts, since most investment platforms will not hold unallocated funds, which would mean that there is either a reallocation of the 415 excess amounts, a return of employee deferrals and forfeiture of related match (if plan provides these features) or a combination of the two.

However, if the plan is not an individual daily valued plan, I would say that the plan can take the deduction as it does not seem to violate 404 deductibility, even if it is sitting in a targeted suspense account for allocation the following plan year (assuming the employer will make a profit sharing contribution the following plan year).

It's not valued daily - there are still some dinosaurs out there!

This is the direction I'm leaning - even though individual 415 limits have been exceeded, if the total contribution does not exceed 404 deduction limits, it's deductible.

The client makes a profit sharing contribution every year, so that's not an issue.

Since it is a pooled account, I don't see any reason which would prohibit the current deduction with the excess suspense being used in the following plan year.

It has always been my understanding that 404 provides the maximum permissable deduction, however it is generally not allowable to deduct amounts in excess of that allocated to participants. That is, no tax breaks for allocating to a suspense account.

PS, this is independent of whether you are using daily or traditional valuations.

You cannot deduct contributions in excess of the 415 limit. See 404(j)(1)(B).

I have more I need to add. Depending on how the document reads you may have 2 scenarios. 1 - you have to remove the contribution from the plan because the document only allows contributions that are deductible; 2 - you have to set up one of the corrections methods under 1.415-(6)(B)(6) (this is probably more likely from what docs I have seen).

If the scenario is number 2, then I believe the contribution is deductible because it is not treated as an annual addition during the year and is therefore not a contribution over the 415 limit.

Blinky..

Thank you for the correction. If the monies do sit in suspense, would they be considered a non-deductible contribution subject to the 10% excise tax under IRS 4972?

The plan started in 1974. Pre 1987 carryovers are permitted to determine the deductible limit in pre-2002 taxable years, which this is. Problem solved?