Is the annual deferral limit pro-rated if plan adopted mid-year?

[Guest Tara Curran]

If an employer adopts a 401(k) plan mid-year, is the participant deferral limit of $10,500 pro-rated for the portion of the year the plan is available? It is my understanding that the $30,000 or 25% annual limit is pro-rated.

[R. Butler]

I am fairly certain the 10,500 is not pro-rated. The limit is not really a plan limitation as much as it is an individual limitation.

[Guest MEGary]

The employee deferral limit is a "calendar year" limit - i.e. you may not defer more than $10,500 in any calendar year.

The $30,000 and 25% limits are determined on the "limitation period" which in this case would be the short plan year, therefore, you must prorate.

Hope this helps!

[Guest Boilerburm]

If you define your plan year to be 1/1 - 12/31, even if it is "adopted" mid-year, I think that this would get you out of pro-rating the limits. Would you agree MEGary?

[Guest MEGary]

I most definitely agree Boilerburm - however, the main question I was trying to address was the pro-rating of the annual deferral limit. It doesn't matter if the plan year is a short year or a full year, you still do not pro-rate the deferral limit.