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Compensation prior to effective date


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Has anyone seen anything with respect to whether compensation prior to the effective date of a SIMPLE IRA could be ignored? Or should total calendar compensation be used regardless of when the plan becomes effective?

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For purposes of a SIMPLE IRA, compensation is defined as the amount reported on the participant's W-2. Therefore, compensation for the year, that was paid prior to the effective date must be considered.

[see IRS Notice 98-4, 1998-2 IRB 26, Q&A D-4]

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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Thanks - that is what I thought. However, I wasn't sure if anyone had heard of any IRS comments since the employer could establish a plan as late as Oct 1st, and if using the match, it could be more beneficial to higher paid EEs since they would generally be more able to defer an larger percentage for 3 months and therefore could get more as calculated on an annual basis. Also safe harbor 401(k) plans now are able to calculate on a payroll or entry date forward method. But if nothing has been mentioned or heard, then annual pay is what will be used. THANKS

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