Deduction where FY is different than PY

Hi

Having a bit of brain freeze.

Looking into adding a DB to an existing 401k plan.

Sponsor FYE is 6/30 however the 401k plan is a calendar plan. Definition of compensation is plan year. Not designed by me, takeover.

If a DB is designed the same way i.e. effective 1/1/2020 and plan year compensation will be used, can the deduction be taken for 6/30/2020 corporate year end? Of course, we will have to wait next year until the salaries are established. The design is important both plan are going to be tested together.

In the past I have always used the salary paid for the FYE within the PYE, never salary paid for the plan year in with FY ends.

What am I missing/not seeing here?

Thank you,

Old 404 regs supported three different ways:

(1) The deductible limit determined for the plan year commencing within the taxable year,
(2) The deductible limit determined for the plan year ending within the taxable year, or
(3) A weighted average of alternatives (1) and (2)

It appears that under the new law only second option is supported. There are no new regs yet. Some assume that when new regs will be issued, all 3 ways will be supported. Some prefer to be conservative, which in your case means that 2020 plan year contributions will be deducted in FYE 6/30/2021.

14 hours ago, Jakyasar said:

Hi

Having a bit of brain freeze.

Looking into adding a DB to an existing 401k plan.

Sponsor FYE is 6/30 however the 401k plan is a calendar plan. Definition of compensation is plan year. Not designed by me, takeover.

If a DB is designed the same way i.e. effective 1/1/2020 and plan year compensation will be used, can the deduction be taken for 6/30/2020 corporate year end? Of course, we will have to wait next year until the salaries are established. The design is important both plan are going to be tested together.

In the past I have always used the salary paid for the FYE within the PYE, never salary paid for the plan year in with FY ends.

What am I missing/not seeing here?

Thank you,

Another comment; we want plan years and fiscal years to line up. If we were taking this over, we would run a short plan year on the DC plan to make it line up with the fiscal year and establish the DB plan on the same basis.  Just something else to think about.....