404 limit with 2 plan years

[Jim Chad]

Calendar year employer is swiiching his 401(k) from 6-30 to 12-31. using a short plan year 7-1-01 to 12-31-01. He will be near 15% for short year and 6-30-01 year. He makes near $170,000. In calculating what he can deduct for 2001 can I use his $170,000 for 6-30-01 PYE + $85,000 for 12-31-01 PYE?

[Richard Anderson]

The compensation used to calculated the deduction limit is the compensation paid to the participants during the employer's taxable year.

Therefore, if the employer is on a calendar year, you would use compensation from 1/1/01 thru 12/31/01.