Max funding for 2008 – $51K – what plans count?
person – has a 401k (employer and employee contributions), and an employer funded Money Purchase pension plan. They also have self employment income and would like to max fund a SEP.
What counts towards the $51,000 limit (46K + 5K catchup)? –
Employee contributions to 401k – YES
Employer Contributions to 401k – ?
Employer Contributions to Money Purchase Plan – ?
SEP Contributions – YES
Permalink Submitted by Chris Lester on Tue, 2009-03-03 16:42
Your question raises some questions before I could give you an answer. Does this person own the company where the 401k and pension plan are establised? Is he/she a highly compensated employee (HCE) The SEP is being considered to defer taxes or to caontribute more to a retirement plan? Will the SEP be set up for this company (if so, discrimination rules apply that may make this a not so attractive option) or a separate company for which this person received income? If the later does anyone else work for that company?
Before I can give you the contribution limits on this example I would like the answer to those questions.
Chris
Permalink Submitted by Allen Neuenschwander on Tue, 2009-03-03 19:57
Question 1: He is not an owner of the company that funds the 401k or pension plan
2: Pretty sure He is not HCE
3: The SEP is from seperate self employment income – he is the only one in the plan.
#2 is the only questionable one, He’ll have to verify with his HR dept.
Assuming he is not – what can he do?
Assuming he is HCE what can he do?
Thanks again
Permalink Submitted by Chris Lester on Tue, 2009-03-03 21:03
Based on those response and depending on his age teh following would be the limits for 2008
Combined 15,500 (401k) a contribution of $30,500 to a SEP to total =$46,000
If over age 50 they can do a catch up of $5,000 for a potential total of $51,000 Keeping in mind that you can only contribute this much if you have actually earned this much. Lastly one other trip wire to be aware of is the aggragation rules and ownership, and HCE of these other companies. If they exceed the totals then they would be prohibited from discriminating against other employees, but you said you did not think this was the case. I hope this helps.
Chris
Permalink Submitted by Allen Neuenschwander on Tue, 2009-03-03 21:21
Just to clarify – are you saying the company funded money purchase pension plan does not count towards the $51,000 (yes he is over 50)?
Thanks
Permalink Submitted by Martin Helmer on Tue, 2009-03-03 21:37
Assuming the self employment business is not part of a controlled group or affiliated service group in relation to the employer who sponsors the 401(k) and Money Purchase Plan—- Then each separate employer has its own separate $46,000 limit. If the employee was 50 or older by the end of 12/31/08 and assuming the 401(k) plan allows for the catchup rule, the total of 401(k) employee plus employer matching and profit sharing and money purchase could be as high as $51,000. This amount could be lower for various reasons.
The SEP by itself allows for 25% of pay to be contributed, with a maximum of $46,000. For a self employed person, the equivalent formula is self employment net income minus 1/2 of the self employment tax, and the result is then multiplied by 20%. Am assuming no elective deferrals are involved in the SEP. This is true for sure if the SEP plan beban after 1996.
If everything fell into place, a total of $97,000 is possible.