What is the IRC code section that limits the amount of compensation taken into account for allocations?

The correct answer is based on Internal Revenue Code Section 401(a)(17), which specifically addresses the limitation on the amount of compensation that can be considered for contributions to qualified plans, including 401(k) plans. This section sets an annual compensation limit for participants, ensuring that only a specified amount of an employee’s earnings is considered for the purpose of plan contributions and allocations.

For example, if the limit is set at $330,000 for a specific year, any compensation over this amount would not be factored into calculating contributions or benefits under the plan. This is important for compliance and ensures that retirement plans do not disproportionately benefit highly compensated employees.

Other sections mentioned serve different purposes. Section 401(k) pertains to the specifics of 401(k) plans but does not set compensation limits; Section 415(c) relates to the overall contribution limits for defined contribution plans; and Section 408(b) addresses the requirements related to individual retirement accounts (IRAs). Thus, 401(a)(17) is the precise code section that limits compensation for allocations, making it the correct choice.