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Fiscal Year And 401(a)(17)

Guest Johnny

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With a plan year that ends June 30, how do limits such as the 401(a)(17) limit apply?

In other words if someone starts on January 1,2001 and is making $340,000, I would assume that they have exhausted the limit this calendar year on June 30, 2001 and that compensation is zero (for pension purposes) in the last six months of calendar 2001.

In the first six months of calendar 2002, they would only be allowed another $170,000 and then another $170,000 in the last six months of calendar 2002, and another $30,000 in the first six months of calendar 2003. Yes?

Thanks in Advance,


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Compensation for purposes of applying section 401(a)(17) to nondiscrimination rules is determined on a plan year basis. Treas. Reg. § 1.401(a)(17)-1(B). Thus, in your example, the person would accrue $170,000 in compensation (i.e., the actual compensation for the first 6 months of 2001) for the plan year ended June 30, 2001, then would accrue another $170,000 (the 401(a)(17) maximum for the last plan year beginning before December 31, 2001) for the plan year ended June 30, 2002.

However, there are different years used for different limits. For example, in applying the section 415 limits, the compensation used is the compensation for the limitation year set forth in the plan, or if none, the calendar year. Treas. Reg. § 1.415-2(B). Thus, you always need to look at the rules for the specific type of limit you are applying.

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