1. The 401(k)
voluntary contribution limit will be $11,000 in 2002 and will
rise by $1,000 per year until reaching $15,000 in 2006. The
limit is currently $10,500.
2. The maximum
401(k) contribution from all sources (i.e., employee voluntary
plus employer matching or profit-sharing contributions) is $35,000
in '01. It will increase to $40,000 in '02.
3. The maximum
earned income that can be considered for retirement plan contributions
- currently $175,000 -- will rise to $200,000 in '02. Previously
a company contribution equal to 10% of annual income would have
been maxed at $17,500; now it would be $20,000.
4. The dollar
limits above have often been superceded by percentage limits.
For instance, the maximum contribution for any
one employee
has been the
lesser of
$35,000 or 25% of income for 2001. For all employees combined,
the average percentage contribution from all sources could not
exceed 15%
of the entire payroll of eligible employees.
Under the new law, this 15% limit has been raised to 25% beginning
in '02.
5. The old
law would have included a voluntary 401(k) contribution as part
of the 25% limit. The new law separates out the voluntary 401(k)
contributions, allowing them to be over and above the 25% limit.
For all practical purposes, the former percentage limitations
are out the window. In most cases under the new laws, the dollar
limits
rather then the percentage limits will be the controlling factor.
6. "Catch-up"contributions
are an option for individuals aged 50 and over. This amounts
to an allowance of additional contributions over and above the
regular 401(k) voluntary dollar limits. The catch-up allowance
in '02 is $1,000. It will rise by $1,000 per year until reaching
$5,000 in '06. This means that by 2006, the total 401(k) voluntary
contribution will be $20,000 for anyone over age 50.
7. For lower-income
employees (those making less than $40,000 per year) there is
an increase of the percentage limit from 25% to 100% of income.
For employees earning over $40,000, the percentage limit of
100% is capped at $40,000. For these lower and middle-income
employees, the voluntary
401(k) deferral is included
in the maximum limits.
8. Retirement
plan participants who have been partners, sole proprietors,
or shareholders of a Subchapter S corporation have never been
allowed to borrow from their retirement pla
Retirement Perspective
