Question
Bubbles LLC is a web design company that operates out of Boulder, Colorado. Mark and Jeff started Bubbles twenty years ago and it has grown
Bubbles LLC is a web design company that operates out of Boulder, Colorado. Mark and Jeff started Bubbles twenty years ago and it has grown to be one of the more sizable web development firms in Colorado. Bubbles offers a 401(k) /profit sharing plan with a Roth account option. The plan has the following characteristics:
Eligibility: age 21 and one-year of service
Match: dollar for dollar up to 4%
Vesting: 20% per year (years 1 through 5)
Highly compensated definition: uses top 20% election (see page 103 "Highly Compensated Election")
Profit-sharing contribution: Bubbles generally makes sizeable contribution, but the percentage varies
The plan has been amended to permit in-plan Roth rollovers
The plan permits rollovers from other qualified plans and IRAs
Questions:
1. What is the most that Bubbles could contribute to the profit-sharing plan and for which they may take a deduction from income for on the entity tax return, for the current year assuming the salary deferrals stay constant?
2. What is the actual deferral percentage for the non-highly compensated employees?
\begin{tabular}{|c|c|c|c|c|c|c|} \hline EE# & Employee & Ownership & Age & Tenure & Salary & Deferral \\ \hline 1 & Mark & 60% & 48 & 20 Years & $200,000 & $10,000 \\ \hline 2 & Jeff & 30% & 49 & 20 Years & $150,000 & $15,000 \\ \hline 3 & Chad & 6% & 33 & 15 Years & $75,000 & $5,250 \\ \hline 4 & Josh & 4% & 42 & 10 Years & $85,000 & $5,100 \\ \hline 5 & Alex & 0% & 58 & 8 Years & $60,000 & $0 \\ \hline 6 & Shay & 0% & 29 & 6 Years & $75,000 & $4,500 \\ \hline 7 & Lisa & 0% & 53 & 4 Years & $50,000 & $0 \\ \hline 8 & Alison & 0% & 19 & 2 Years & $60,000 & $0 \\ \hline 5 & Chung & 0% & 25 & 8 Months & $24,000 & $0 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|c|c|} \hline EE# & Employee & Ownership & Age & Tenure & Salary & Deferral \\ \hline 1 & Mark & 60% & 48 & 20 Years & $200,000 & $10,000 \\ \hline 2 & Jeff & 30% & 49 & 20 Years & $150,000 & $15,000 \\ \hline 3 & Chad & 6% & 33 & 15 Years & $75,000 & $5,250 \\ \hline 4 & Josh & 4% & 42 & 10 Years & $85,000 & $5,100 \\ \hline 5 & Alex & 0% & 58 & 8 Years & $60,000 & $0 \\ \hline 6 & Shay & 0% & 29 & 6 Years & $75,000 & $4,500 \\ \hline 7 & Lisa & 0% & 53 & 4 Years & $50,000 & $0 \\ \hline 8 & Alison & 0% & 19 & 2 Years & $60,000 & $0 \\ \hline 5 & Chung & 0% & 25 & 8 Months & $24,000 & $0 \\ \hline \end{tabular}Step by Step Solution
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