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Author: dek4 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75838  
Subject: 401K contrib limit? Date: 12/3/1998 8:44 AM
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I posted this a few days ago but now can not locate the post or any possible answers, please excuse if this a duplicat. If you were kind enough to answer, would you please repeat the answer. Many thanks.

I am needing clarification on 401K annual contribution limit makeup. Is the $10,000 limit referring only to the employee's deferal amount before any employer match is added? (Thus the annual employee+employer match amount put into the account could be over $10,000.) Or is it the combined amount that must not exceed $10,000?

Thanks in advance for any helpful insights.

dek4
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Author: peppermintpatty Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6949 of 75838
Subject: Re: 401K contrib limit? Date: 12/3/1998 9:45 AM
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dek4 - EmployEE maximum contribution is 15% of pay, or $10,000/year, whichever is less. This amount may be reduced if "top-heavy" testing shows that the highest paid employees exceed the lowest paid employee contribution by a certain amount (the formula for which I don't happen to know offhand). Hope this clears things up! Good luck. PP

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6962 of 75838
Subject: Re: 401K contrib limit? Date: 12/3/1998 1:33 PM
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Greetings, Dek4, and welcome. You asked:

<<I posted this a few days ago but now can not locate the post or any possible answers, please excuse if this a duplicat. If you were kind enough to answer, would you please repeat the answer. Many thanks.

I am needing clarification on 401K annual contribution limit makeup. Is the $10,000 limit referring only to the employee's deferal amount before any employer match is added? (Thus the annual employee+employer match amount put into the account could be over $10,000.) Or is it the combined amount that must not exceed $10,000?>>


The amount you contribute (i.e., what gets deducted from your paycheck) may not exceed the lesser of 25% of your gross pay or $10K. The percentage limit is reduced by any contribution made by your employer. If your employer puts in 6% of your pay, then you may only put in the lesser of 19% or $10K. Additionally, your contribution may be further restricted if you are in the "highly compensated" group and the "lower compensated" don't contribute enough; however, that gets into the arena of discrimination testing, which can get a tad complicated to explain. Suffice it to say that if you contribute the maximum allowed by the percentage/$10K rule as previously explained and you still end up getting part of that contribution back as an "excess" contribution, then you are in the highly compensated group and got caught up in the discrimination testing rules.

Regards….Pixy


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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 6963 of 75838
Subject: Re: 401K contrib limit? Date: 12/3/1998 1:35 PM
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Peppermintpatty wrote:

<<EmployEE maximum contribution is 15% of pay, or $10,000/year, whichever is less. >>

I hope that was a typo because it's incorrect. The maximum is the lesser of 25% -- not 15% -- of gross pay or $10K. The 25% is reduced by whatever the employer puts in. If the employer contributes 5%, then the participant can only put in the lesser of 20% of gross pay or $10K. To further compound matters, in combination the employER and the employEE together may contribute a maximum of the lesser of 25% of gross pay or $30K. And that doesn't even begin to get into the discrimination testing rules to which you alluded. Ain't the ins and outs of defined contribution plans fun?

Regards….Pixy


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