Compensation Limit - To Prorate or Not...

[Guest KAGrist]

An existing calendar year Profit Sharing Plan added a 401(k) provision and SHNEC 3% effective at 3/1/2008.

Client has provided compensation from 1/1/2008 - 12/31/2008 for the Profit Sharing contribution allocation.

Client has also provided compensation from 3/1/2008-12/31/2008 for the SHNEC 3% allocation.

Do we need to pro-rate the 2008 $230,000 comp limit for the SHNEC 3% calculation?

One owner earned $198,000 from 3/1 to 12/31/2008. If the $230,000 limit is pro-rated over 10 months, the owner would be capped at $191,667 for the 3% SHNEC calculation. Do you agree?

Thanks for your help!

[Guest Sieve]

Since you have an ongoing PS plan already in place, I don't think there's a need to prorate. (See Treas. Reg. Section 1.401(a)(17)-1(b)(3)(iii)(A).)