1. If the company's contribution towards 401K is counted against yearly cap from IRS?
2. The company in which I am working only allows us to contribute only 18% of total base salary...So, if I am making $50K, I can only contribute upto $9K per year and can never reach IRS yearly cap(for example $15,500 in 2007)...Is this common for companies to have a cap? How can I save taxes on remaining amount($15,500 - $9,000 = $6,500)? This does not seem right to me as low income people with great saving tendency can not save taxes due to %cap imposed by the company? does IRS play any role in this?
2007-03-10 07:31:14 · 4 answers · asked by vipiinusa 1 in Business & Finance ➔ Taxes ➔ United States
when you sign up for a Retirement plan, you make a contractual agreement with the Plan Administrator. The Administrator has a great deal of leeway in what he includes in the Plan document. Since this is a contractual agreement Tax Law does not change the initial agreement as long as the actual limitations are not exceeded.
If your plan allows for a lesser percentage then that is your applicable limitation.
There are IRA's and other investments that you can look into.
2007-03-10 07:41:46 · answer #1 · answered by Anonymous · 1⤊ 0⤋
No the company's contribution does not count against the IRS cap (Section 402(g) of the tax code).
The 18% cap that your company may have is their own limit and dates back to a time where the IRS did have a 25% limit on contributions for and by an employee. However that law has been changed for years now and most plans have removed that cap. There is no reason that yours still has it and I'm guessing that it very likely doesn't. However, your HR group may not know that the plan document was changed and that cap was removed. Ask them if the document was amended for EGTRRA (pronounced EGG-TERRA). The percentage change went from 25% to 100% in that law change. However, companies were not required to change the percentage so yours may not have....just most did.
In the meantime, you can contribute to an IRA to get another 4k...
2007-03-12 03:34:42 · answer #2 · answered by digdowndeepnseattle 6 · 0⤊ 0⤋
Yes, it's common for companies to have a cap on what can be contributed. And no, their contribution doesn't count towards the yearly cap, from the IRS or from the company.
2007-03-10 11:20:13 · answer #3 · answered by Judy 7 · 0⤊ 0⤋
The company matching contributions do not count towards the annual cap on employee contributions.
Some companies do limit your annual contributions. It's legal as long as everyone in the plan is subject to the same rules.
You can still open an IRA and contribute to that if you wish to salt away more money towards retirement.
2007-03-10 07:48:58 · answer #4 · answered by Bostonian In MO 7 · 2⤊ 0⤋