404 Deduction Limit

[Gilmore]

I had a question regarding the participants compensation that is used to calculate the 404 maximum employer deduction limit, if the employer's fiscal year is different from the plan year.

For example, the plan year ends 12/31 and the fiscal year ends 6/30. I believe that the 404 limit is based on the employers taxable year. I am confused over which participants are used in the 404 calculation. Do you use only the participants that are eligible as of the end of the taxable year (6/30) or do you use the participants that are eligible as of the plan year end in which the contribution is allocated and use their compensation from the taxable year in which the contribution is deducted?

Or am I just completely confusing the whole thing?

Thanks!

[WDIK]

The plan document should define the plan year, limitation year, and employer's fiscal year as well as compensation and its applicable period(s) for plan purposes.

[Blinky the 3-eyed Fish]

It will also define a whole lot of other terms, but I doubt that will answer your question.

You are correct that 404 is based on compensation paid in the fiscal year. To compute what compensation you use, you need to know for what year the deduction is being taken and the compensation of those benefiting paid in the fiscal year of the year of deduction, i.e. the latter of your choice.

[WDIK]

Any ineptitude on my part was unintentional, and I apologize to any and all who were offended by my post.

[Gilmore]

Thanks, and sorry to be dense, but are you saying that if the allocation is being made for the plan year ending 12/31/2003, and being deducted for the fiscal year ending 6/30/2003, then I would use the compensation for the twelve months ending 6/30/2003 of the participants who are benefitting as of 12/31/2003?

Thanks again!