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I know that this has been asked many times but could someone please tell me the new limits on 401K investing.


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I pulled this directly from my Fidelity website. Hope this helps...

"Contribution Limits

The IRS imposes several limits on the amount that can be contributed to your 401(k) plan account in a year.

Pre-tax contribution

The maximum pre-tax amount you can contribute each year to your 401(k) plan account is determined by the IRS. For 2001, your combined pre-tax contributions made to employer-sponsored plan(s) you participate in during the year cannot exceed $10,500. As a result of the Economic Growth and Tax Relief Reconciliation Act of 2001, the maximum pre-tax contribution limit will eventually increase to $15,000 as follows:

Year Limit
2002 $11,000
2003 $12,000
2004 $13,000
2005 $14,000
2006 $15,000

After 2006, the maximum pre-tax contribution limit is indexed in $500 increments.

These amounts are your pre-tax limit for the given year even if you work for more than one employer. Your plan may have its own limits as well.

Total contribution

The IRS has also set limits on the total amount that may be contributed to your 401(k) account from all sources combined, including any employer matching or profit-sharing contribution, and any employee after-tax contributions. For 2001, the maximum is the lesser of $35,000 or 25% of your total compensation. For 2002, the maximum is the lesser of 100% of compensation or $40,000. The $40,000 limit will increase in $1,000 increments based on cost of living adjustments.

Catch-up contributions

Depending on plan rules, you may become eligible to make salary deferral, pre-tax, catch-up contributions beginning January 1st of the year you turn age 50. These contributions are in addition to your regular deferral contributions. Catch-up contributions start at $1,000 for 2002, and increase by $1,000 a year until they reach $5,000 in 2006. Thereafter, the maximum amount will be indexed in $500 increments.

Highly-compensated employees

To make sure that an employer's 401(k) plan does not unfairly favor its higher-paid workers, there are also rules governing highly-compensated employees or HCEs. The term highly-compensated employees may include a person who was a 5% owner at any time during the current or prior year or an employee who earned more than $85,000 in 2001. An employee whose salary ranked in the top 20% of payroll for the prior year might also be considered an HCE. Generally, to make sure a 401(k) plan is compliant, each year the plan must pass a non-discrimination test. (Note that some plans are designed so that they do not need to pass these tests each year.)

These tests generally compare the amounts contributed by and on behalf of highly compensated employees to those contributed by and on behalf of the non-highly compensated employees. As long as the difference between the percentages of these two groups is within the Internal Revenue Code's guidelines, the plan retains its tax-qualified status. If the plan does not pass the tests, the plan must take corrective action or lose its tax-favored status."

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Keep in mind, these are the limits set by the IRS, you compay's plan may have lower limits in place. You need to check a copy of the Summary Plan description available from your Personnel Dept to see what the limits are for your specific plan.

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