|
New
Business Owner And Employee Contribution Limits
Economic
Growth & Tax Relief Reconciliation Act of 2001
(H.R. 1836)
Changes begin 2002
Business Owner/Employee Contributions –
| |
IRA/Roth-IRA
|
401(k)/403(b)/457
SAR-SEP Plans |
SIMPLE-IRA
Plans |
| Year |
Regular
Contribution
|
Extra
Age 50+ |
Regular
Deferral |
Extra
Age 50+ |
Regular
Deferral |
Extra
Age 50+ |
|
2001
2002
2003
2004
2005
2006
2007
2008
2009 |
$2,000
$3,000
$3,000
$3,000
$4,000
$4,000
$4,000
$5,000
(indexed)
|
$0
+$500
+$500
+$500
+$500
+$1,000
+$1,000
+$1,000
+$1,000 |
$10,500*
$11,000*
$12,000
$13,000
$14,000
$15,000
(indexed) |
$0
+$1,000
+$2,000
+$3,000
+$4,000
+$5,000
(indexed) |
$6,500
$7,000
$8,000
$9,000
$10,000
(indexed) |
$0
$500
$1,000
$1,500
$2,000
$2,500
(indexed) |
Increase in Maximum Contribution limit per employee starting in 2002
*The maximum employee salary deferral (401(k), 403(b), 457, SAR-SEP) percentage limit has
been increased from 20% to 100% of pay.
*The maximum SEP-IRA & Profit Sharing contribution dollar limit per employee from all sources (deferrals, match, profit sharing, etc.) is:
2002 $40,000 plus $1,000 for age 50 catch-up = $41,000 Total
2003 $40,000 plus $2,000 for age 50 catch-up = $42,000 Total
2004 $41,000 plus $3,000 for age 50 catch-up = $44,000 Total
2005 $42,000 plus $4,000 for age 50 catch-up =
$46,000 Total
Note: The age 50 catch-up is only available with salary deferral plans i.e., 401(k)
*The maximum SEP-IRA & Profit Sharing percentage limit is increased from 15% to 25%
of employee pay.
New IRA/Retirement Plan Rules for Transfers and Rollovers starting in 2002
*457 plans for city & state employees can now be transferred or rolled over tax deferred to any other retirement account. Previously all distributions from a 457 plan were taxable and could not be rolled over to an IRA.
*401(k), 403(b) and profit sharing plans can now accept transfers from any
other retirement plan (IRA, 457, 403(b), SEP) which previously were not allowed.
Company
Profit Sharing Contributions –
| 2004 |
0 to 25% of
$205,000 max. compensation with a contribution limit of
$41,000 from all sources (deferral, match, P.S.) except age 50 catch-up which can be in addition to the rule. |
|
| $100,000 Compensation Example |
|
$205,000 Compensation Example |
Under
$41,000 Limit
Profit Sharing @ 25%
PLUS Salary
Deferral
Total
all Sources
PLUS
Age 50
catch up
Total |
$ 25,000
+
13,000
$ 38,000
+ 3,000
$ 41,000 |
|
At
$41,000 Limit
Salary Deferral
Reduced Profit Sharing
Total All Sources
Plus Age 50 catch up
Total |
$ 13,000
_28,000 (restricted
if at $41k limit)
$ 41,000
_ 3,000
(employee
salary deferral)
$ 44,000 |
|
| |
| 1. |
Profit Sharing contribution percentages increased from 15% to 25% of compensation beginning in
2002. |
| 2. |
This now gives the Profit Sharing Plan the same contribution maximum ($41,000 in 2003) as the Money Purchase Plan so the Money Purchase Plan is no longer needed. |
| 3. |
Salary deferral contributions no longer reduce company P.S. contribution if $41,000 limit is not exceeded. |
| |
|
| 2005 |
0 to 25% of
$210,000 max. compensation with a contribution limit of
$42,000 from all sources (deferral, match, P.S.) except age 50 catch-up which can be in addition to the rule. |
|
| $100,000 Compensation Example |
|
$205,000 Compensation Example |
Under
$42,000 Limit
Profit Sharing @ 25%
PLUS Salary
Deferral
Total all Sources
PLUS Age 50 catch up
Total |
$ 25,000
+
14,000
$ 39,000
+ 4,000
$ 43,000
|
|
At
$42,000 Limit
Salary Deferral
Reduced Profit Sharing
Total
all Sources
PLUS Age 50 catch up
Total |
$ 14,000
28,000(restricted
if at $42k limit)
$ 42,000
4,000
$ 46,000 |
|
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