New Cross Tested Plan - Partial Year

[DP]

I'm setting up a new calendar year Cross-Tested PS plan effective 3/1/05. This is the date the company incorporated and started business.

For this first year, will the $42,000 max contribution and the $210,000 max compensation limits be prorated for 10/12 of the maximum?

My mind is drawing a blank. Thanks!

[Tom Poje]

digging back through my notes, gasp, too much dust, this goes back to the first ASPPA conference I ever attended

1997 Q and A question 30 (somewhat abbreviated via my typing)

is it permissible to have a plans effective date preceed the existence of the plan sponsor...in other words, can we have an effective date of 1/1/97, and use all compensation paid for the 12 month period even though there is no payroll prior to 3/1, and therefore no need to prorate the limits?

Answer: It seems reasonable that with proper attention to details of the plan design (including effective dates as outlined above) the issues of concern can be avoided. We know of nothing that prohibits provisions such as those outlined above.

of course the Q and A's are general opinions of a given IRS agent and don't necessarily represent an official position. on the other hand, it gives a leg to stand on. and if you are submitting for a determination letter why not just submit and see if you get approval. otherwise, it is my understanding you would have to prorate if you go with a 3/1 effective date, but then, that is not my field of expertiese.

[DP]

Thanks, Tom.

[WDIK]

More discussion is available here.

[AndyH]

Just to clarify, DP, if you set it up to have a 10 month plan year, then, yes, the limits are prorated. But you do not need to do that.

[Blinky the 3-eyed Fish]

Well technically the 415 limit is based on the limitation year, so you could have a short plan year and a full limitation year and not prorate. The 401(a)(17) limit is based on the compensation period, so again, you could have a short plan year but a full compensation period and not prorate.

[AndyH]

True.

Is there a reason why one might want to have a short plan year but a full limitation year?

Is there any reason to consider a limitation period of other than a year, i.e. the sum of limitation months perhaps?

Can a limitation period be three dimensional?

[Blinky the 3-eyed Fish]

I will climb to the top of the mountain this weekend and ask the Buddhist monk in the big chair.

[jane123]

Blinky- anything from the man in the bigh chair?

[could be me maybe not]

Cat got fish's tongue? Consider looking here: http://yoyo.cc.monash.edu.au/~bunyip/primes/

[Blinky the 3-eyed Fish]

He said for me to go with my heart. I told him he was full of crap and left in a huff.