Multiple Contribution Limits

What is the contribution limit on multiple retirement plans with one employer?

are salary deferral plans that are funded with employee contributions.

• Money purchase,
• profit sharing, and
• SEP IRA plans are

employer-funded retirement plans.

If one employer establishes a combination of salary deferral and employer-funded retirement plans, the combined limit is $44,000 in 2006.

In 2006, an employee can defer $15,000 into a salary deferral plan and have $29,000 contributed by the employer into an employer-funded retirement plan.

The employer cannot fund a SIMPLE IRA plan along with another retirement plan in the same year.

What is the contribution limit on multiple plans with multiple employers?

If you have earned income from multiple unrelated employers, including being self-employed, you can have

a maximum of up to 25% of compensation or $44,000 contributed into plans for each employer

Example 1:

Mr. Smith has a money purchase or profit sharing plan by his employer at work and also has self-employment income. Even though he is a participant in his employer's retirement plan, he is also able to establish a retirement plan for his self-employment income up to $44,000 or 25% of net self-employment income.

Example 2:

In 2006, an individual works at two jobs. Employer 1 has a 401k plan and Employer 2 has a money purchase plan. The individual can defer $15,000 into his/her 401k plan at job 1 and if, the individual's compensation is high enough, his employer can contribute $44,000 into his/her money purchase plan at job 2, assuming the employers are unrelated.

If an employee is covered by an employer retirement plan can he/she still contribute to Traditional IRA and Roth IRA?

Even if an employee is covered by a retirement plan, he/she may still be eligible to make traditional or Roth IRA contributions (age or income limits may apply).