In the past, I have had a Profit Sharing Plan for my business. Can I now terminate that plan and set up a Small Business Pension Program?
Yes. Your existing profit sharing plan can be terminated and you can set up a Small Business Pension Program. However, if you have already made your profit sharing contributions for the current plan year, those contributions might not be deductible if the Small Business Pension Program is established for the same year. In any year in which an employer maintains a Small Business Pension Program (defined benefit plan) and a defined contribution plan, the maximum deductible limit for both plans is the GREATER OF (1) 25% of total compensation, or (2) the amount necessary to fund the defined benefit plan. Usually, the contribution amount for the defined benefit plan exceeds 25% of total compensation, so any employer contribution to the defined contribution plan might not be deductible this year. Please talk to your tax advisor and refer to IRS Publication 560 concerning deductibility and carryovers to future years.
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