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Exclusion Percentage

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Exclusion Percentage
The exclusion percentage is used to compute the excludable amount of a pension under the general rule. This percentage is determined by dividing the taxpayer's total contribution by the expected return.


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If a corporation ceases to be a qualifying business after the five-year holding period, the higher exclusion percentage applies only to gain accrued to the date the corporation was no longer a qualifying business.
However, the AICPA is concerned about provisions (1) used to calculate the exclusion percentage for lifetime annuity payments; (2) allowing additional nonelective contributions or midyear changes in savings incentive match plans for employees (SIMPLEs); (3) permitting reverse-match salary reduction contributions to simple employee plans (SEPs); and (4) requiring a quarterly notice to qualified plan participants and beneficiaries.
However, the ruling's approach leaves room for mismatching, because it determines the PTE exclusion percentage at the time of the redemption distribution, rather than at the time the earnings were originally included in the U.
 
 
 
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