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Many thanks to "W401K" for the useful links he provided in posts 29994 and 29963, on the new tax bill's impact on retirement accounts (http://www.universalpensions.com/alert/Alert05302001.asp and http://www.tagdata.com/).

Using these links, I arrived at some tentative conclusions regarding maximum annual employee contributions to 403(b) and 401(k) plans, under the new tax law. But I was surprised by some of my conclusions, and so I am hoping for some additional verification/opinion/feedback from fellow Fools.

For 403(b) plans, it appears that virtually *all* employees are now allowed to contribute the full maximum dollar amount ($11K in 2002, $12K in 03, $13K in 04, $14K in 05, $15K in 06) regardless of what percent this is of their salaries (just so long as the sum of employer plus employee contributions is less than both $40K and 100% of salary, which is almost always the case).

On the other hand, for 401(k) plans, in addition to the maximum dollar amount limit ($11K in 2002, and so on), it seems that there is also something called the "employer deduction limit for profit sharing plans." This has been increased from 15% to 25%. So it appears to me that in practice, many 401(k) participants will also be limited by 25% of their salaries.

Mite E. Mouse

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No. of Recommendations: 1
On the other hand, for 401(k) plans, in addition to the maximum dollar amount limit ($11K in 2002, and so on), it seems that there is also something called the "employer deduction limit for profit sharing plans." This has been increased from 15% to 25%. So it appears to me that in practice, many 401(k) participants will also be limited by 25% of their salaries.

THere is no limit in terms of a percentage on 401k (Employee) contributions. So, employees may contribute up to the full dollar limit or 100% of pay under the new rules. (Expected to be signed today by the Prez)
The 25% deductable limit is on employer contributions. Under the old rules, the maximum an employer could contribute to a PRofit Sharing Plan was 15% of pay. It has now been raised to 25%.
Hope this helps.

Bill

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