Expert: Allen - 2/18/2009

Question
I have a Sole Proprietor who sponsors two qualified plans.  A 401(k) Plan and a Defined Benefit Plan.  Normally I would use the net schedule C and net out the total contribution to the plan to determine the benefit for the sole prop.  He also defers $15,500 into the 401k Plan.
Do I need to subtract the $15,500 of salary deferrals from the net schedule C when calculating the benefits in the Defined Benefit Plan?

Answer
You do not subtract salary deferral contributions to obtain "compensation" for plan purposes.

To be exact - Compensation is bottom line Schedule C income reduced by 50% of the self employment tax paid on that income, contributions to the defined benefit pension plan and contributions (if any) to the profit sharing portion of the 401k plan.