what is the maximum percentage a participant can deduct in a 401(k) pl

[Guest Tara Curran]

Can a participant in a 401(k) potentially defer more than $10,500 or 15%? The Company provides a matching contribution of 50% of the first 3% of compensation and no profit sharing contribution. According to some discussion I have heard, the participant can actually defer the following percentage:

20% - (80% X 50% X 3%) = 18.8% of compensation

Is this correct?

[R. Butler]

Assuming the plan document does not specify otherwise, the participant in your example could defer 23.5% as long as the dollar amount of employee deferrals does not exceed $10,500.00 in a calendar year.

[Guest]

the 15% is a company deduction limit.

There is deductible limit for an individual.

there is a maximum he/she can receive, which is 25% of pay or 30,000 whichever is smaller.

there is also a cap of 105000 on deferrals in the year 2000.

as Butler pointed out, you could defer 23.5% and get a 1.5% match.

however, spme plans limit deferrals to 15% or 20% or some other figure, so that might not be possible.

I guarantee you, if everyone deferred 20%, the company would amend the plan to limit deferrals because they would not be able to deduct the full amount.

The '80%' factor that is built into the equation goes back to teh days when compensation was limited to compensation - deferrals for 415 purposes