401k plan year and employer contribution

[tertue]

A C Corp business year end is 5/31 and the 401k plan is on a calendar year - do I use compensation paid on the W2 for the calendar year or compensation paid from 6/1 to 5/31 to compute the 25% employer contribution?

What if the C Corp business year end is still 5/31, but the 401K plan year also ends 5/31? What compensation amounts would I use in this case?

Where in the 401k plan document does it spell out the plan year (mean the plan year end)?

[K2retire]

Your compensation definition should help. Also look for a definition of the limitation year. It is usually right by the definition of plan year.

[Bill Presson]

Your compensation definition should help. Also look for a definition of the limitation year. It is usually right by the definition of plan year.

Here's what the plan says:

Plan Year means each 12-consescutive month period ending on May 31

Limitation Year means: Plan Year

If your Plan Year ends each May 31, are you sure the 401(k) is a calendar year plan?

[rcline46]

WIth a corp ending 5/31, you must ALWAYS use the comp earned in the corp year for the 25% calculation. This is a corporate item, not a plan item.

[Bill Presson]

There seems to be a cross confusion of several items in this thread, so I think we need to make sure we're all on the same page.

tertue:

1. are you trying to calculate a contribution for the employees or the maximum deduction amount for the employer?

2. do you actually have a plan in place right now? If so, what is the plan year? 1/1-12/31 or 6/1-5/31?

3. What plan year are you doing a calculation for?

Maybe this will get us headed in the right direction.

[Guest Sieve]

tertue -- Some examples of the use of Plan Year: determines the Form 5500 filing period, testing is based on the plan year (e.g., ADP & top heavy tests), plan year can detemine when contributions are to be made in order to be deductible, plan year is generally the basis on which compensation is determined for testing purposes, entry dates for participation is generally based on plan year.