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Hi Fools,

I know that an employee can invest $13K (or is it $14k?) in his/her 401k plan for 2005. My question: What's the IRS rule regarding this amount? Is the limit $13K for both employee's contributions + company match or just employee's contributions and company's match goes on top of $13K?

I am confused on this part because different people say differently. Maybe you can put a link from IRS publication that clarifies that for me?

I appreciate your help.
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For this year, the max. EMPLOYEE contribution is $14k. The max total contribution is MUCH higher (don't know how high) and it may depend if you are considered a "highly compensated employee" or not.

Illini2001
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Don't forget that if you are 50 or older you can contribute and extra $4,000 in catch up contributions.

Greg
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Don't forget that if you are 50 or older you can contribute and extra $4,000 in catch up contributions.

What happens if you're 50 or over and fall in the highly compensated category ?

rad
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I know that an employee can invest $13K (or is it $14k?) in his/her 401k plan for 2005. My question: What's the IRS rule regarding this amount? Is the limit $13K for both employee's contributions + company match or just employee's contributions and company's match goes on top of $13K?

I am confused on this part because different people say differently. Maybe you can put a link from IRS publication that clarifies that for me?

---------------

This IRS Link should get you in the ballpark:

http://www.irs.gov/faqs/faq-kw7.html

Regards,
Bill
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<< Don't forget that if you are 50 or older you can contribute and extra $4,000 in catch up contributions. >>

What happens if you're 50 or over and fall in the highly compensated category ?


Off the top of my head, that shouldn't have any impact your ability to make so-called "catch-up" contributions to a 401(k). I should check to make sure, though.

-synchronicity

Next year it's 15K and 5K, and will be adjusted for inflation after that.
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What happens if you're 50 or over and fall in the highly compensated category ?
******************
Off the top of my head, that shouldn't have any impact your ability to make so-called "catch-up" contributions to a 401(k). I should check to make sure, though.


Synch,
I believe that the catch-up contributions are included in the total contribution for both highly compensated individuals and others, so if the plan is out of formula and you're in the highly compensated category, one might very well get some dollars returned. I just got 'back' $800 from 2004--but better than 2002 when it was over $6000! Which only proves that most folks really do follow a herd investing mentality--when prices were cheap they stayed out of the market)

2old
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Thank you, Fools! Now it is clear: $14K (we're under 50) + whatever company matches.

Thanks for clarification
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You can put more than $14k + catch-up, + company match into your 401(k).

It goes in as "after-tax" contributions. Gains are not taxed until withdrawn. The basis can be withdrawn tax-free, since it was taxed previously.

I do this every year.

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You can put more than $14k + catch-up, + company match into your 401(k).

It goes in as "after-tax" contributions.


I believe it depends on your plan. My employer does not allow this, however.

3MM
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You can put more than $14k + catch-up, + company match into your 401(k).

It goes in as "after-tax" contributions. Gains are not taxed until withdrawn. The basis can be withdrawn tax-free, since it was taxed previously.

I do this every year.


My employer doesn't allow this. (Sounds good though. Like a Roth with no limits.)

--SirTas


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>> My employer doesn't allow this. (Sounds good though. Like a Roth with no limits.) <<

It can be a good idea, except that as you near retirement you may find that you have too much in tax-deferred assets, and that eventually MRDs starting at age 70 1/2 would kick you into very high tax brackets.

I'd rather have some of it in taxable accounts than an after-tax 401K or non-deductible IRA. It's easier to "engineer" your withdrawals at retirement to take out just as much taxable income as you can (in the lower brackets) and then pull from the Roth or taxable accounts for amounts that would be taxed at (say) 25% and above. If you use very long-term stock holdings or tax-managed mutual funds and rarely trade, you can do just as well in the taxable account with the lower dividend and cap gains rates.

#29
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