fess for defined benefit plan

[jyhoward.cpa]

Where do you deduct the annual fees for a one person defined benefit
plan? Is it a Schedule C deduction or Schedule A miscellaneous
itemized deduction? The IRS says it is deductible, but doesn't say
where.

 

[Harlan Lunsford]

Where do you deduct the annual fees for a one person defined benefit
plan? Is it a Schedule C deduction or Schedule A miscellaneous
itemized deduction? The IRS says it is deductible, but doesn't say
where.

Interesting. I've never had a proprietor with such a plan. Most always
they have a defined contribution plan, e.g. SEP, 401k (simple.....)

has anybody else ever heard of such?

ChEAr$,
Harlan Lunsford, EA n LA

 

[Steve Pope]

(e-mail address removed) wrote:

Interesting. I've never had a proprietor with such a plan.
Most always they have a defined contribution plan, e.g. SEP,
401k (simple.....)

has anybody else ever heard of such?

Sure. Here's one discussion:

http://www.cpaspan.com/pensionNov02.htm

A quote from the above (severals years old, such that the
combined contribution limie at the time was $40,000):

Defined benefit plans have been off our radar screen for
years. Since the mid-1980.s, defined benefit plans have
been shunned by most employers. In some circumstances,
however, a defined benefit plan can be a home run under
the new tax laws.

The advantage of the one-person defined benefit
plan is that contributions much greater than $40,000
per year can be made. But, the situation has to be
"right." Defined benefit plans turn on actuarial hocus
pocus. The business owner must have a large income (at
least $100,000 per year), he or she must be at least 45
year old (for once, older is better), and ---- here.s
the hard part --- that income must be sustainable for
several years, at least five or more. A defined benefit
plan is not a "one shot" item to be used when the owner
has a single huge year. In my experience, the people
who best fit the profile for one-man defined benefit
plans are professionals, sales people, or consultants.

If your client meets these criteria, you will need
a licensed actuary to design and administer the
plan. Mere mortals, such as CPAs, lawyers, and financial
consultants, can.t do this. The good news, however, is
that very capable actuaries are available locally. When
the situation is right, the one man defined benefit
plan is pure magic.

The take-home lesson is "don't try this at home...".

(End quote.)

Steve

 

[jyhoward.cpa]

Sure.  Here's one discussion:

http://www.cpaspan.com/pensionNov02.htm

A quote from the above (severals years old, such that the
combined contribution limie at the time was $40,000):

   Defined benefit plans have been off our radar screen for
   years. Since the mid-1980.s, defined benefit plans have
   been shunned by most employers. In some circumstances,
   however, a defined benefit plan can be a home run under
   the new tax laws.

   The advantage of the one-person defined benefit
   plan is that contributions much greater than $40,000
   per year can be made. But, the situation has to be
   "right." Defined benefit plans turn on actuarial hocus
   pocus. The business owner must have a large income (at
   least $100,000 per year), he or she must be at least 45
   year old (for once, older is better), and ---- here.s
   the hard part --- that income must be sustainable for
   several years, at least five or more. A defined benefit
   plan is not a "one shot" item to be used when the owner
   has a single huge year. In my experience, the people
   who best fit the profile for one-man defined benefit
   plans are professionals, sales people, or consultants.

   If your client meets these criteria, you will need
   a licensed actuary to design and administer the
   plan. Mere mortals, such as CPAs, lawyers, and financial
   consultants, can.t do this. The good news, however, is
   that very capable actuaries are available locally. When
   the situation is right, the one man defined benefit
   plan is pure magic.

The take-home lesson is "don't try this at home...".

(End quote.)

Steve

This is definitely a defined benefit plan for a sole proprietor. He
has sufficient income to make it a good option and is nearing
retirement age. The plan has been in existence for several years.

 

[Steve Pope]

This is definitely a defined benefit plan for a sole proprietor. He
has sufficient income to make it a good option and is nearing
retirement age. The plan has been in existence for several years.

Here is some information. It looks to me like
Rev. Ruling 68-533 allowed deduction of trustee's fees under
either Section 162 (i.e. Schedule C) or Section 212 (i.e.
Schedule A); Rev. Ruling 86-142 confirms this does not extend to a
deduction for broker's commissions on transactions. But
then a pair of letter rulings in 1992, 8941010 and 9124034,
weakened the Section 162 deduction, saying that the payments
may in some cases count towards the section 404 limit on
contributions. I suspect this is the background for the
common advice that these fees should only be deducted on
Schedule A. On the other hand, as this is (unusually) a defined
benefit plan, it is not clear the logic regarding section 404
limits holds.

Steve (not a tax professional)

 

[Seth]

Interesting. I've never had a proprietor with such a plan. Most always
they have a defined contribution plan, e.g. SEP, 401k (simple.....)

has anybody else ever heard of such?

Yes; in the 1980's, it was often possible to put a lot more money into
a Defined Benefit plan than into a Defined Contribution plan. (The
most extreme case I heard of was a child actor whose working career
was expected to end around age 18, so the entire plan could be funded
over very few years.)

Seth