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b.
Smaller of: $195,000 in 2010 (indexed each year) or 100% times highest three years average salaries, or $212,000. Thus,
$195,000 is Jacob’s maximum allowable benefit.
91.
Determine the maximum annual benefits payable to a participant from a defined
benefit plan in
the following independent situations:
a.
Joey, age 69, has been a participant for 16 years, and his highest average compensation for 3 years is $107,000.
b.
Stacey, age 66, has been a participant for 9 years (11 years of service), and her highest average compensation for 3 years is
$131,000.
a.
$107,000 in 2010. The maximum allowable benefits payable to Joey from a defined benefit plan is the smaller of $195,000 in
2010 (indexed each year) or 100% of his average compensation for his highest three years of employment.
b.
$131,000 in 2010. The defined benefit plan must reduce Stacey’s maximum benefit payable [e.g., $195,000 in 2010 (indexed
each year)] by one-tenth for each year of participation under 10 years (e.g., $195,000 ´ 9/10 = $175,500). Thus, the $131,000
average compensation amount is below the ceiling.
92.
Mahendra, age 37, is an employee of a retail outlet. He defers $19,000 in a § 401(k) plan in 2010.
Compute any tax ramifications.
The $2,500 excess over the $16,500 limit, along with any appropriate earnings, must be returned to
Mahendra by April 15, 2011. This $2,500 excess amount plus related income is taxable to him in
2010 and will be taxed again upon distribution (if made after April 15, 2011). There is a 10% tax on
his employer on any excess contributions not returned within 2 1/2 months after the close of the plan
year.
93.
Yao, a self-employed lawyer, has a profit sharing plan with a contribution rate of 15% of
compensation. Yao’s earned income after the deduction of one-half of self-employment tax, but
before the Keogh contribution, is $260,000. Calculate Yao’s maximum contribution in 2010.
The 25% limitation on the employee’s contribution is computed on the first $245,000 in 2010 of
earned income. Thus, Yao's maximum contribution in 2010 is $36,750 ($245,000 – .15X = X; X =
$213,043). Therefore, $245,000 – $213,043 = $31,957.
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