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Sorry, typing error. §415(c) is lesser of 25% of comp. or $30,000. To expand on my previous post. Your corp. can adopt a profit sharing plan that actually has a 401(k) plan built inside of it (or the 401(k) can stand separate --- it doesn't really matter). Then, you permit/do the following:

Permit 401(k) contrib's up to 10% of pay with a 1/5th or 2% match.

Adopt the PS plan using §401(l)(2)(A) formula of approximately: 8.5% of pay on the first $70,000 of comp; followed by 14.2% of pay on excess over $70k up to $160k.

Here is how the math works out for two employees

Clerk/staff at $50,000

401(k) contrib. $5000
2% match $1000
PS (8.5% * $50k) $4250

Total $10250
Total employer cost $5250


Owner/Exec at $160,000 or more

401(k) contrib. $10000
2% match $2000
PS (8.5% * $70k) $5950
PS (14.2 * $90k) $12780

Total $30,730
Total employer cost $20,730

Note that the total for the exec. is over the $30k limit so we have to fix it. The are 2 ways to do this: one is to reduce his/her 401(k) contribution down from $10k down to $9,270. This will actually help the company pass the ADP discrimination tests; to the extent that you need help. The second way is to reduce the PS layers down to 8.1% and 13.8% respectively. The secret here is to do your 401(k) ADP testing first to get a lay of the land & then secondarily, finalize the PS formula --- kind of like solving a simultaneous equation in alegbra.

The above concept formulas work ever year with a couple of caveats:

1. The formulas do need tinkering by a couple of tenths every year as the social security wage base chages every year and sooner or later the §415(c) limit aka the $30k limit and the 401(k) $10k limit & the §401(a)(17)(a) $160,000 comp limit all index up.

2. The corp has a relatively high percentage of workers making less than $70k & most of the exec's are owners and make $100k to $300k plus.

3. The real objective is to permit the exec/owners to each save $30k per year at the minimum funding cost to the remainder of the employee population.


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