Does the IRS ever limit the employer match contribution of a 401k for highly compensated employees?

Answer 1

Yes, indirectly....they limit it by forcing the employer to contribute the same % match to all employees. And if the match is graded (ie goes up based upon the % of compensation that is being deferred where those deferring greater than 10% would receive a higher match % then those under 10%) then you would have to pass a Benefits Rights and Features test to show that it's not discriminatory. Typically such a match doesn't work....

That's why most smaller employers use Profit Sharing to allow for a greater contribution for the HCE's...there are formulas and ways to provide for a larger contribution for the HCE's without being discriminatory. ex: By using a certain formula an employer could possibly provide for a 15% profit sharing contribution for all HCE's while lmiting the Non-HCE's to only 5%. Pretty nice eh?

Overall limit that can be contributed to a Defined Contribution plan is $45,000. It can be split between employee and employer money but the employee money can't be greater than 15,500.

Answer 2

on your situation different sections of the IRS code persist with to chop back your contributions. it incredibly is advisable to ask your employer and 401k administrator to inspect including a miles better half 401a application to develop what you could make a contribution. the guidelines are distinctive, and there's a few further disadvantages which you will desire to discover with the 401k administrator and employer.

Answer 3

I don't think IRS has anything to do with it. The government determines the 401 program guidelines. This is set up by the employer and the financial institution.

Answer 4

yes there are limits, for 2007 they are: $15,500 for pre-tax employee contributions (+$5,000 for over 50 make-up contributions) and $45,000 total from all sources.