Safe Harbor and Short Plan Years

[Guest JF]

A client is starting a safe harbor 401(k) (new plan) effective July 1 with the 3% non-elective option. They do not want to contribute the 3% for the period jan1-June 30. Am I right to assume that there needs to be a short plan year of 7/1 - 12/31 for 1999 to do the safe harbor ? Will this reduce the $10,000 401k deferral limit to $5,000?

thanks-jf

[Guest JimD]

I agree you need a short plan year with compensation defined as plan year comp. The 10,000 limit is not prorated.