401k limit

[PS]

Generally when a plan terminate testing is done for the short plan year, one the plan that is terminating in November could like to know if the 401k limit will be the same for they part's since they are will not contributing in any other plan so will the limit be the same? will the testing be for the short plan year. 

Thanks

[CuseFan]

If you're asking about the 402(g) dollar limit ($19,500 for 2021) - that is an individual calendar year limit and is not affected by plan terminations, short plan years and the like.

[PS]

Thank you. 

The plan is terminating sometime next week and I informed the client that the testing will be done for the short plan year ending 11/18 and the limits will be Pro rata. However the client stated since these Participants would not be contributing anywhere else will the limit still be 19,500 for the entire year and if we can consider the entire limit.   

[rocknrolls2]

While the 402(g) limit is an individual calendar year limit, Code Section 401(a)(30) applies that limit to the qualified 401(k) plan as well, so it is not a complete answer as to whether the limit would be pro-rated by a plan termination or short plan year. I would err on the side of caution and pro rate the limit for purposes of Code Section 401(a)(30).

[PS]

Thank you!

 

[Mike Preston]

23 minutes ago, rocknrolls2 said:

While the 402(g) limit is an individual calendar year limit, Code Section 401(a)(30) applies that limit to the qualified 401(k) plan as well, so it is not a complete answer as to whether the limit would be pro-rated by a plan termination or short plan year. I would err on the side of caution and pro rate the limit for purposes of Code Section 401(a)(30).

Phooey!

[Luke Bailey]

On 11/12/2021 at 3:33 PM, Mike Preston said:

Phooey!

So what  Mike is referring to here, PS and rockenrolls2, is that the 401(a)(30) annual limit on an employee's elective contributions only applies to multiple plans IF those plans are maintained by the same employer or an employer in the same controlled group. So assuming that the employer in this case does not have another 401(k), and is not in a controlled group with another company with a 401(k), in either case into which a participant in the terminating plan would also need to be making elective deferrals for there to be a problem, the terminating plan gets the full 402(g) limit, e.g. in 2021 $19,500 + $6,500 for 50 and overs).

As an aside, while I guess if you're going to err, it may be best to do so on the side of caution, one of the main justifications for the complexity and density of the U.S. Internal Revenue Code is that taxpayers are usually not put into a position of having to make educated guesses as to what they can and can't do. Doesn't always work out that way, but I think the 401(k) elective deferral limit is one area where it does.