Barry Margolin wrote:

- quote -

I agree that you have to check the plan, and quite a few are
going to have restrictions in this area. However, the
interesting point is that if the limit is still set at
either 15% or 25%, it indicates that likely somebody hasn't
yet gotten around to thinking about why those provisions are
in there and whether they shouldn't be updated.

Previously the 15% number would have been in there because
of the risk that the total deferrals of all employees would
have exceeded 15% of aggregate covered compensation and have
created a nondeductible (to the employer) amount of the
funding under IRC Section 404. Now the law has been changed
so that employee elective deferrals are no longer counted as
"employer contributions" for purposes of computing the
employer deduction limit under Section 404.

The 25% number came from old Section 415, that made 25% the
maximum amount that could be allocated to a participant's
account in a defined contribution plan. That number was
changed to 100% at the same time as the above change was
made.

Now, all that said, the plan still governs and the law still
clearly allows a plan to contain these limits. As well,
there may be very good administrative, policy and employee
relations arguments why you don't want employees to be able
to defer excessive amounts (like they might have a "change
of heart" later in the year and then start screaming they
want the money back <grin> ).

As is always true in plans, the federal law primarily gives
you limits or minimums that must be in the plan -- but the
plan can always have provisions that go the "other
direction" from the minimum or limit in the law.

--
Ed Zollars, CPA
Phoenix, Arizona

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Jason Danziger wrote:

- quote -

If your plan allows it, you can put all of it less social
security and medicare (and other deductions) into the plan.
The 25% restriction seems to have been eliminated.

25% would have been $2,400 or less, as it was total
contributions (including both the employer and employee
share of medical insurance, for example) vs. after-tax
income.

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"Jason Danziger" <jdanziger[at]sbcglobal.net> wrote:

- quote -

Most 401k plans have a maximum percentage that can be
deducted from each paycheck, typically in the 15-25% range.
This limit will be in effect even if it's less than the
federal maximum of $12,000.

Your plan's limit should be clearly specified in the plan
documentation (perhaps that's where you got the 25% that you
mentioned in your post). If not, contact you HR Department
and they should be able to answer any questions about your
plan.

--
Barry Margolin, barmar[at]alum.mit.edu
Level(3) Communications, Woburn, MA

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"Jason Danziger" <jdanziger[at]sbcglobal.net> wrote:

- quote -

Your 401K contributions are limited to the percentage limits
allowed by your employer, or $3,000.

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"Jason Danziger" <jdanziger[at]sbcglobal.net> wrote:

- quote -

First and foremost, tax law allows for a maximum
contribution of $12,000 in 2003. If you are at least age 50
on any day in 2003, you can elect to make a catch-up
contribution of $2000. That makes a total of $14,000 if you
meet the age criteria. Secondly, the amount you can
contribute is determined by your employer's plan. This
amount is generally expressed as a percentage of your pay
per payroll period. If you have a plan that allows for a 25%
contribution, then you could contribute 25% of your pay or
$1000 a month ($4000 X 25%).

Alan
http://taxtopics.net

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I just started a new job and would like to find out how much
of my salary I can take out and put into my 401(k).

I will be making $4,000 per month for October-December for
$12,000 of total income. Can I pull out all of this into
my 401(k) because after social security taxes and medicare
my total income for 2003 will be less than the $12,000 limit
or can I only contribute 25% x $12,000 =$3,000. I will have
no matching by my employer.

Thanks alot.

Jason Danziger

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