maximum contribution levels 2001

[Guest DDDlump]

what is the maximum amount that can be put in a 401(k) profit sharing plan for the year 2001. I am getting conflicting answers. Is it 15% of $170,000 (max comp) or is it 25%.

[Guest pineapple]

For 2001, the statutory limit is the lesser of $11,000 or 25% of compensation. But it depends entirely on what your plan document states. Your plan may have a lower limit.

(Most plans limited participants to 15% of compensation so as to avoid exceeding the 404 deduction limit, which was 15% of total eligible compensation.)

[Mike Preston]

There are both individual limits (25% of pay, but not more than $35,000 - note that the $35,000 rule applies to anyone who has pensionable earnings of $140,000 or more) and overall plan sponsor limits (15% of pay for all participants).

So, if you are the only participant in a plan, your limit would be 15% of $170,000, or $25,500. Since the maximum salary deferral for 2001 is $10,500, there must be employer contributions of at least $15,000 to push up to the $25,500 limit.

If there are other employees who receive, in total between deferrals and employer contributions, less than 15% of pay, then whatever portion of the maximum 15% of pay limit is not used up may be used by other participants in the plan.

There is a small "gotcha" in the above rules if a person is participating in a plan as part of a group of employers. If that plan was established after 1988, then the overall limitations apply employer by employer. In the typical situation, you will see a medical practice, where 1 or more of the doctors has their own corporation. In this case, the doctor is usually the only employee of the corporation that employs the doctor's services. Even if the overall medical practice has employees in the plan who have not used up their portion of the 15% of pay limitation, the doctor is still limited to 15% (or, at max, $25,500) because the limit applies separately to each employer under the plan.

If this isn't clear, add some personal facts to the equation and somebody will no doubt calculate the exact maximum.