SEP IRA

Posts Tagged ‘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).

Below is a chart of retirement plan Contribution limits showing historical Contribution limits from 2002 to 2006. SEP IRA, Profit Sharing and Money Purchase Plan maximum Contribution or Keogh have the highest retirement plan Contribution limits, followed by 401k, 403b, and Section 457 retirement plans. This high Contribution limits make SEP IRA, Profit Sharing and Money Purchase Plan maximum Contribution or Keogh very popular retirement vehicles.

	2006	2005	2004	2003	2002
401(k) and SARSEP elective deferrals	$15,000	$14,000	$13,000	$12,000	$11,000
403(b) elective deferrals	$15,000	$14,000	$13,000	$12,000	$11,000
SIMPLE IRA elective deferrals.	$10,000	$10,000	$9,000	$8,000	$7,000
Catch-up contributions at age 50 or over to 401(k), 403(b), SARSEP and 457 plans	$5,000	$4,000	$3,000	$2,000	$1,000
Catch-up contributions at age 50 or over to SIMPLE IRA Plans.	$2,500	$2,000	$1,500	$1,000	$500
SEP IRA, Profit Sharing and Money Purchase Plan maximum Contribution or Keogh.	$44,000	$42,000	$41,000	$40,000	$40,000
SEP IRA minimum compensation Eligibility threshold.	$450	$450	$450	$450	$450
Section 457 retirement plan – state and local government plans elective deferrals	$15,000	$14,000	$13,000	$12,000	$11,000
Compensation limit (maximum for calculations)	$220,000	$210,000	$205,000	$200,000	$200,000

The retirement plan Contribution limit increases are provided for under the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”). EGTRRA has a sunset provision under which these increases and other changes in the tax law will expire at the end of 2010.

In 2011 the tax law will revert back to the rules that would be in effect had EGTRRA never been enacted, unless EGTRRA is extended by Congress and the President.