Historical Contribution & Testing Limits
*For a plan year that is less than 12 months (either due to initially establishing the plan after the first of the year or terminating a plan before the end of the year), these limits must be pro-rated based on the number of months in the short plan year. For example, a plan year that runs from January 1st through September 30th would multiply the applicable limit by 9/12.
Information Regarding Non-Calendar Year Plans
Just like a company, a retirement plan is required to operate on a set 12-month period. This is often referred to as the tax year or fiscal year for a business and a plan year for a retirement plan. Also similar to many companies, many retirement plans elect to use the calendar year as that 12-month period. But just because most businesses/plans operate that way does not mean that all of them must.
While some business owners and accountants prefer to have the retirement plan operate on the same year as the business, there is no legal requirement that the two align. And, as we will describe in the linked article below, there are several compliance reasons why it might make sense to have the plan year line- up with the calendar year even if the company's fiscal year is different. Read more.
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