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Does anyone know if there are income limits that, if exceeded, do not allow for tax credits on 401k contributions? I know there is for Traditional IRAs so I am just wondering about 401ks as well. This would be for married filing jointly. Thank you!
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I was really interested in the tax deductibility limits for contributions. I can't imagine it's $57,500. that's just way too low.
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Does anyone know if there are income limits that, if exceeded, do not allow for tax credits on 401k contributions? I know there is for Traditional IRAs so I am just wondering about 401ks as well. This would be for married filing jointly. Thank you!

It depends on what you mean by 'tax credits' and 'income limits'. There is no Modified Adjusted Gross Income (MAGI) limit on 401(k) deductibility for 401(k) contributions like there is for IRA contributions. However, there are several other income/compensation limits associated with 401(k) plans that can affect the amount contributed and/or the tax treatment of those contributions.

For 2013, from the IRS announcement on Pension Plan limits http://www.irs.gov/uac/2013-Pension-Plan-Limitations

For the Saver's credit, which is what the term 'tax credits' brings to mind when used in relation to 401(k) contributions:

•The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $59,000 for married couples filing jointly, up from $57,500 in 2012; $44,250 for heads of household, up from $43,125; and $29,500 for married individuals filing separately and for singles, up from $28,750.

From the same announcement, the amount of the contribution that can be deducted:

•The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is increased from $17,000 to $17,500.
•The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $5,500.


From the same announcement, the highly compensated employee limit, which can limit the amount that can be contributed:

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $115,000.

From the same announcement, the amount of compensation that can be considered for deductible contributions to a 401(k) plan:

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C) and 408(k)(6)(D)(ii) is increased from $250,000 to $255,000.

If you were looking for limits for 2014 instead of 2013, here's the link to that announcement:

http://www.irs.gov/uac/IRS-Announces-2014-Pension-Plan-Limit...

AJ
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Thanks AJ. So, if I'm reading this correctly, then would a married couple filing jointly making $300,000 be able to contribute 5% of their salary to a 401(k) and be able to deduct the $15,000 contribution from their income, thus lowering their AGI?
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No, I read those rules to mean a married couple earning $300K will probably be classed as a highly compensated employee at at least one employer. That will limit their tax deductible contribution to somewhat less than $15K.

However, the highly compensated is calculated for each individual employee. So one may be limited at their employer while another is not limited or both may be limited.
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Thanks AJ. So, if I'm reading this correctly, then would a married couple filing jointly making $300,000 be able to contribute 5% of their salary to a 401(k) and be able to deduct the $15,000 contribution from their income, thus lowering their AGI?

It depends on the 401(k) plan that each has available. In 2014, it is possible that each could contribute up to $17,500 ($23,000 if 50 or older by the end of 2014), lowering their joint taxable income by $35,000 ($46,000 if both are 50 or older by the end of 2014).

In order to do this, because of the 'highly compensated employee' rule, each of their plans would have to be a 'safe harbor' plan, that provides matches that are fully vested upon receipt. Otherwise, the plan may be required to limit either the percent or the dollar amount that a highly compensated employee can contribute, which would likely lower the amount that could be contributed.

Additionally, the plan that each has available must allow each one to contribute a high enough percentage of their income to reach the maximum dollar amount. For instance, for someone younger than 50 who makes $100,000, if the plan limits them to contributing 10% of their income, they would be nowhere near reaching the $17,500 limit, and would only be able to contribute a maximum of $10,000. These limits are dependent on the rules of the plan.

However, for a couple who jointly make $300k, if each is working for an employer that has a safe harbor 401(k) plan that allows each to put in a high enough percentage of their individual income to reach the $17,500 limit ($23,000 if 50 or older), it would be completely possible for them to lower their joint Federal taxable income by 11.7% - 15.3% ($35,000 - $46,000), depending on their ages. All of that income would have been taxable at their marginal rate of 33%, so maxing out their contributions would save between $11,550 and $15,180 in taxes due for 2014. Of course, the income taxes are only deferred - they will have to pay taxes on the amount that they withdraw in the future.

AJ
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No, I read those rules to mean a married couple earning $300K will probably be classed as a highly compensated employee at at least one employer. That will limit their tax deductible contribution to somewhat less than $15K.

Not necessarily. If the 401(k) plan for the employer where the highly compensated employee(s) work is a 'safe harbor' plan, they can still max out their contribution.

AJ
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Thanks AJ. That was very helpful!
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