All, my current company has deemed me a "highly compensated" employee. Therefore, I cannot contribute more than 8% of my before tax income to my 401K. The company match is 3% of salary. Assume I make 100K per year, my contribution is $8000, the company matches $3000 giving a yearly amount of $11000. Can i then put another $4000 into an IRA to bring my total tax deductible contribution up to $15K. Any other strategies to up my contributed amount? My wife does not work so could i contribute something on her behalf?
thanks
pl
Contribution limits for 401K/IRA
Moderator: Mark T Serbinski CA CPA
You likely can contribute to a Traditional IRA, but it will not be deductible. This has nothing to do with the 401(k) limits. Your limit is $8000 on that and that's it. Depending on your toatl income you might be able to Roth instead.
You could contribute to your wife's traditional IRA ($3000 for 2004 tax year, $4000 for 2005 tax year.
By the way, by your post you seem to be saying you make $100K. This doesn't seem to make you 'highly compensated'. Are you part of some other pension scheme?
How has the company defined you as highly compensated?
<i>nelsona non grata</i>
You could contribute to your wife's traditional IRA ($3000 for 2004 tax year, $4000 for 2005 tax year.
By the way, by your post you seem to be saying you make $100K. This doesn't seem to make you 'highly compensated'. Are you part of some other pension scheme?
How has the company defined you as highly compensated?
<i>nelsona non grata</i>
Nelson,
here's the information on the highly compensated rule as it applies to me i believe. the following was cut and pasted from the fidelity website.
<font face="Arial">***There are rules to make sure that an employer does not discriminate and unfairly favor its highly compensated employees through a 401(k) plan. The term highly-compensated employees includes a person(s) who was a 5% owner at any time during the current or preceding year. The term also includes an employee who had the compensation of more than $95,000 in 2005. (Note the compensation used to determine if an employee is highly compensated is the amount of compensation from the preceding year.) Generally, to make sure a 401(k) plan is compliant, each year the plan must pass a non-discrimination test. (Note that some plans are designed so that they do not need to pass these tests each year.)
These tests generally compare the amounts contributed by and on behalf of highly compensated employees to those contributed by and on behalf of the non-highly compensated employees. As long as the difference between the percentages of these two groups is within the Internal Revenue Code's guidelines, the plan retains its tax-qualified status. If the plan does not pass the tests, the plan must take corrective action or lose its tax-favored status.***</font id="Arial">
thanks for the information. it seems like there's no real way to increase my limits.
pl
here's the information on the highly compensated rule as it applies to me i believe. the following was cut and pasted from the fidelity website.
<font face="Arial">***There are rules to make sure that an employer does not discriminate and unfairly favor its highly compensated employees through a 401(k) plan. The term highly-compensated employees includes a person(s) who was a 5% owner at any time during the current or preceding year. The term also includes an employee who had the compensation of more than $95,000 in 2005. (Note the compensation used to determine if an employee is highly compensated is the amount of compensation from the preceding year.) Generally, to make sure a 401(k) plan is compliant, each year the plan must pass a non-discrimination test. (Note that some plans are designed so that they do not need to pass these tests each year.)
These tests generally compare the amounts contributed by and on behalf of highly compensated employees to those contributed by and on behalf of the non-highly compensated employees. As long as the difference between the percentages of these two groups is within the Internal Revenue Code's guidelines, the plan retains its tax-qualified status. If the plan does not pass the tests, the plan must take corrective action or lose its tax-favored status.***</font id="Arial">
thanks for the information. it seems like there's no real way to increase my limits.
pl
Yup.
Your 401(K) limit is separate from your IRA limit.
Your IRA limit is the same as for every other US taxpayer: $4000 or your wages whichever is less.
The deductibility of your IRA contribution is ZERO, since you belong to an employer sponsored plan.
Your non-working spouse can make a deductible contribution, depending on your joint income.
<i>nelsona non grata</i>
Your 401(K) limit is separate from your IRA limit.
Your IRA limit is the same as for every other US taxpayer: $4000 or your wages whichever is less.
The deductibility of your IRA contribution is ZERO, since you belong to an employer sponsored plan.
Your non-working spouse can make a deductible contribution, depending on your joint income.
<i>nelsona non grata</i>