Contribution Limits for Retirement Accounts
Being aware of the distinct contribution limits for various retirement plans provides the opportunity to maximize tax benefits. Contribution limits depend upon the type of retirement plan and whether contributions are from an employer or an employee's deferral of compensation, which are paycheck deductions.
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Profit Sharing Plans
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Total contributions to profit sharing plans, such as a 401(k), are limited to 25 percent of an employee's compensation up to a maximum of $49,000 for 2010, which, like all these limits, is subject to cost-of-living adjustment for subsequent years. The annual limit on compensation deferral by an employee to a 401(k) is $16,500 in 2010.
SIMPLE 401(k)
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The annual employee compensation deferral limit for a SIMPLE 401(k) is $11,500 in 2010.
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Catch-Up Contributions
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A profit sharing plan, such as a 401(k), may permit employees age 50 and over to make additional deferrals of compensation. The catch-up contribution limit of a 401(k) is $5,500 for 2010. For a SIMPLE 401(k) the catch-up contribution limit is $2,500 for 2010. Total employee contributions cannot exceed an employee's annual compensation.
SEP IRA
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Under a SEP plan, contributions from the employer are limited to 25 percent of an employee's compensation up to a maximum of $49,000 for 2010.
SIMPLE IRA
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In a SIMPLE IRA plan the maximum employer contribution is a match of employee compensation deferral up to 3 percent of compensation. The maximum employee contribution is $11,500 in 2010.
IRA
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The maximum annual combined contributions to traditional and Roth IRAs is $5,000 in 2010. The maximum combined contributions for someone age 50 or older is $6,000 in 2010. IRA contributions cannot exceed 100 percent of taxable compensation.
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References
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