PY Begins 12/1--what do I prorate?

[BG5150]

For some reason, powers that be made this plan effective 12/1/21.

What limits am I prorating when doing the profit sharing?

And am I correct in remembering that self-employment income is "earned" on 12/31?  So in this case, the owner will be using his full $290,000 comp?  (unless the comp limit is 1/12 of course...)

[Lou S.]

when does the plan year end?

Assuming you have a 1 month plan year then 415(c) and 401(a)(17) are both prorated by 1/12th so 415(c) limit would be $4,833.33 and 401(a)(17) $24,166.67.

[BG5150]

PYE 12/31.  Sorry, should have made that clear. And...

Yikes. (I pretty much knew that)

I don't know who set up the plan that way and why.

The only two times I ever use a short plan year are plan termination years and spin-offs.

[Lou S.]

Adopt a new plan 002 retro to 1/1 under SECURE; fund that for 2021; and merge into the old one for 2022; file $0 5500 for plan 001 for 2021? Kind of a PITA but I think it would solve your proration issues.

[Nate S]

On 3/30/2022 at 4:49 PM, Lou S. said:

when does the plan year end?

Assuming you have a 1 month plan year then 415(c) and 401(a)(17) are both prorated by 1/12th so 415(c) limit would be $4,833.33 and 401(a)(17) $24,166.67.

Is 415 pro-rated or subject to the restriction, if any, of the "Limitation Year" in the doc?

[Bri]

^^^True, the limitation year definition is something to watch for here.

[Lou S.]

I was under the impression if you had a short plan year you had a short plan limitation year as well but maybe I'm mixing something up?

[Nate S]

7 minutes ago, Lou S. said:

I was under the impression if you had a short plan year you had a short plan limitation year as well but maybe I'm mixing something up?

That depends upon the definition in the plan document.  You would only be limited if the limitation year is tied to the plan year.  Otherwise most docs use a 12 month or calendar year measurement. 

[BG5150]

We retroactively amended the plan.  One thought was that the amendment is correcting the operational failure of depositing the PS based on full-year salary.

Also, before the plan was adopted, several illustrations went back and forth clearly showing the PS based on full year comp, therefore showing intent.