What happens if the plan terminates overfunded?

To optimize this situation the owner has two tax-efficient alternatives, which may be used in combination:

a. If the owner’s benefit is below the maximum allowed benefit, then it can be increased to absorb most of the excess.

b. The excess can be used to pre-fund a Profit Sharing Plan for up to 7 years.

Please note, we work carefully with our clients to avoid overfunding. We have only had one plan terminate overfunded in 30 years and that was because the owner chose to overfund and then use the excess to pre-fund the Profit Sharing Plan.