Brief Case

Treas. Reg. § 1.404(a)-13

Contributions of an employer where deductions are allowable under section 404(a) (1) or (2) and also under section 404(a)(3); application of section 404(a)(7).
CFR 2016 annual edition (revised as of 2016-04-01) · superseded May 18, 2016 · last amended by T.D. 6534, 26 FR 517, Jan. 20, 1961
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Historical text in effect Apr 1, 1997 through May 17, 2016. View current · Compare with current
(a) Where deductions are allowable under section 404(a) (1) or (2) on account of contributions under a pension or annuity plan and deductions are also allowable under section 404(a)(3) for the same taxable year on account of contributions to a profit-sharing or stock bonus trust, the total deductions under these sections are subject to the provisions of section 404(a)(7) unless no employee who is a beneficiary under the trusts or plans for which deductions are allowable under section 404(a) (1) or (2) is also a beneficiary under the trusts for which deductions are allowable under section 404(a)(3). The provisions of section 404(a)(7) apply only to deductions for overlapping trusts or plans, i.e., for all trusts or plans for which deductions are allowable under section 404(a) (1), (2), or (3) except (1) any trust or plan for which deductions are allowable under section 404(a) (1) or (2) and which does not cover any employee who is also covered under a trust for which deductions are allowable under section 404(a) (3), and (2) any trust for which deductions are allowable under section 404(a)(3) and which does not cover any employee who is also covered under a trust or plan for which deductions are allowable under section 404(a) (1) or (2). The limitations under section 404(a)(7) for any taxable year of the employer are based on the compensation otherwise paid or accrued during the year by the employer to all employees who, in such year, are beneficiaries of the funds accumulated under one or more of the overlapping trusts or plans. For purposes of the preceding sentence, if the taxable year of the employer with respect to which the limitation is being computed ends with or within a taxable year of any of the overlapping trusts or plans during which any such trust is not exempt under section 501(a) or, in the case of a plan, during which it does not meet the requirements of section 404(a)(2), or if such taxable year of the employer ends after any such trust or plan has terminated, then, with respect to such trust or plan, those employees, and only those employees, who, at any time during the one-year period ending on the last day of the last calendar month during which the trust was exempt under section 501(a), or the plan met the requirements of section 404(a)(2), were beneficiaries of the funds accumulated under such trust or plan shall be considered the beneficiaries of such trust or plan in the taxable year of the employer with respect to which the limitation is being computed. For purposes of this paragraph, “compensation otherwise paid or accrued” means all of the compensation paid or accrued except that for which a deduction is allowable under a plan that qualifies under section 401(a), including a plan that qualifies under section 404(a)(2).
(b) Under section 404(a)(7), any excess of the total amount otherwise deductible for the taxable year under section 404(a) (1), (2), or (3) as contributions to overlapping trusts or plans over 25 percent of the compensation otherwise paid or accrued during the year to all the employees who are beneficiaries under such trusts or plans, is not deductible for such year but is deductible for succeeding taxable years, in order of time, so that the total deduction for contributions to such trusts or plans for a succeeding taxable year is equal to the lesser of—
(1) 30 percent of the compensation otherwise paid or accrued during the taxable year to all the employees who are beneficiaries under such trusts or plans in the year, or
(2) The sum of (i) the smaller of (a) 25 percent of the compensation otherwise paid or accrued during the taxable year to all employees who are beneficiaries under such trusts or plans in the year, or (b) the total of the amounts otherwise deductible under section 404(a) (1), (2), or (3) for the year for such trusts or plans and (ii) any carryover to the year from prior years under section 404(a)(7), i.e., any excess otherwise deductible under section 404(a) (1), (2), or (3), but not deducted for a prior taxable year because of the limitations under section 404(a)(7).
(c) The limitations under section 404(a)(7) are determined and applied after all the limitations, deductions otherwise allowable, and carryovers under section 404(a) (1), (2), and (3) have been determined and applied, and, in particular, after effect has been given to the carryover provision in section 404(a)(1)(D) and in the second and third sentences of section 404(a)(3)(A). Where the limitations under section 404(a)(7) reduce the total amount deductible, the excess deductible in succeeding years is treated as a carryover which is distinct from, and additional to, any excess contributions carried over and deductible in succeeding years under the provisions in section 404(a)(1)(D) or in the third sentence of section 404(a)(3)(A). The application of the provisions of section 404(a)(7) and the treatment of carryovers for a case where the taxable years are calendar years and the overlapping trusts or plans consist of a pension trust and a profit-sharing trust put into effect in 1954 and covering the same employees may be illustrated as follows:
Illustration of Application of Provisions of Section 404(a)(7) and of Treatment of Carryovers for Overlapping Pension and Profit-Sharing Trusts Put Into Effect in 1954 and Covering the Same Employees (All Figures Represent Thousands of Dollars and all Taxable (Calendar) Years of the Employer are Years Which End With or Within A Taxable Year of the Trust for Which it is Exempt Under Section 501(a))
Taxable calendar years1954195519561957
before giving effect to section 404(a)(7)
Pension trust contributions and limitations, deductions, and carryovers under section 404(a)(1):
1. Contributions paid in year$215$85$140$60
2. Contributions carried over from prior years05020
3. Total deductible for year subject to limitation2159014080
4. Limitation applicable to year21017512085
5. Amount deductible for year2109012080
6. Contributions carried over to succeeding years50200
Profit-sharing trust contributions and limitations, deductions, and carryovers under section 404(a)(3):
7. Contributions paid in year20012510565
8. Contributions carried over from prior years035100
9. Total deductible for year subject to limitation20016011565
10. Limitation applicable to year1651501351 110
11. Amount deductible for year16515011565
12. Contributions carried over to succeeding years351000
application of section 404(a)(7)
Totals for pension and profit-sharing trust:
13. Amount deductible for year under section 404(a)(7):
(1) 30 percent of compensation covered in year 2(3 )300270180
(2) (i) (a) 25 percent of compensation covered in year 2275250225150
(b) Total amount otherwise deductible for year: item 5 plus item 11375240235145
(c) Smaller of (a) or (b)275240225145
(ii) Carryover from prior years under section 404(a)(7)01004010
(iii) Sum of (i)(c) and (ii)275340265155
(3) Amount deductible: Lesser of (1) or (2)(iii)275300265155
14. Carryover to succeeding years under section 404(a)(7): item 13(2)(ii) plus item 3(2)(i)(b) minus item 13(3)10040100
Source credit, amendments & notes

[T.D. 6500, 25 FR 11689, Nov. 26, 1960, as amended by T.D. 6534, 26 FR 517, Jan. 20, 1961]

Treas. Reg. § 1.404(a)-13 — Contributions of an employer where deductions are allowable under section 404(a) (1) or (2) and also under section 404(a)(3); application of section 404(a)(7). · CFR 2016 annual edition (revised as of 2016-04-01) · https://pensionresource.website/EAMain?content=EAMain.Law&id=cfr26-1.404%28a%29-13&asof=1998-10-20 · printed Oct 16, 2026
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  • (a) (a) Where deductions are allowable under section 404(a) (1)…
  • (b) (b) Under section 404(a)(7), any excess of the total amount…
  • (c) (c) The limitations under section 404(a)(7) are determined …
Implements
I.R.C. § 404 Deduction for contributions of an employer to an employees' trust or annuity plan and compensation under a deferred-payment plan
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EffectiveThroughSourceAmended by
Apr 1, 1997May 17, 2016CFR 2016 annual edition (revised as of 2016-04-01) run 127T.D. 6534, 26 FR 517, Jan. 20, 1961View
May 18, 2016currenteCFR editorial change effective 2016-05-18 run 2T.D. 6534, 26 FR 517, Jan. 20, 1961View · Redline (sign in)
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