29th Oct 2009 by Joseph Pousada
The Internal Revenue Service sets the maximum dollar amount you can contribute to a 401k. The current maximum dollar amount allowed is for 2009 and 2010 is $16,500 (this amount increases if you are over the age of 50 by $5,500) for traditional and safe harbor 401k plans and 11,500(this amount increases if you are over the age of 50 by $2,500) for Simple 401k plans. The IRS has set tables for future increases in the limits which can be found on the referenced links. While the IRS allows the increased contribution amounts for persons over the age of 50 the individual plan may not allow this. However, a client may participate in two separate 401k plans in which neither will allow for the catch up amount and between the two plans reach the catch up amount.
The maximum amount an employer may contribute can be complicated. The IRS rules have special stipulations for plans whose overwhelming contribution goes to senior management. There are special tests to show whether these rules apply and what action would be required. If you have a prototype plan through your broker/dealer, it is recommended you consult with them to get guidance. Whether you have a prototype plan or a customized non-prototype plan is highly recommended that you see an attorney who specializes in this to ensure your plan is not subject to any IRS action.
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