401K Employer Match & Over $90,000 Salary Questions

[jmlcards]

A little background on me ...
- I live in Florida
- I am 27 and single
- My current salary is $80,000 a year
- My current 401k contribution rate is 31%
- My company match 50% up to the first 4% (a nice way of saying 2%)

Now for my questions ...
1. I am aware the most you can contribute pretax to a 401k in 2005 is $14,000, however I can't find any information as to if that includes the company match. Can I contribute 14k myself and get a company match for another $1,000 plus ... or combined can my contributions and my company's match not exceed $14,000?

2. There is a good chance of my salary increasing this year to over $90,000. I have read that salaries above $90,000 have different rules regarding to contributions for 401k, but I haven't ben able to find an answer as to what those differences are, can anyone explain them to me?


Thanks in advance for any help anyone can offer me

Jared

 

[pattytx]

The $14K limit applies to your pre-tax contributions only; it does not include the employer match.

There are some other limits that also apply:

$42K total of all elective deferrals, employer contributions and forfeitures, and employee after-tax contributions (if allowed by your plan)

$205K compensation limit eligible for deferral

$4K additional pre-tax contributions allowed if employee will reach age 50 by the end of the calendar year

The plan must pass anti-discrimination testing to show it does not discriminate in favor of Highly Compensated Employees (HCEs) in terms of the percentage of compensation actually deferred by all participants. The definition of an HCE is one who 1) was an owner of 5% or more of the company's stock (or capital, if not a corporation) at any time during the preceding or current year or 2) received compensation greater than $90,000 (2004 limit; indexed annually in $5K increments) during the preceding year. The employer may opt to limit the employees fitting under the second definition to those in the top-paid 20% of employees during the preceding calendar year.

What does all this mean to you? Depending upon how your company defines "highly compensated" for definition #2 above, you may end up being considered an HCE and, as a result, your contributions may end up being limited to a lower amount so the company can pass the required anti-discrimination testing. This is often not known until later in the year when employers start doing interim anti-discrimination testing. However, if you have a high percentage of lower income workers in the company, who don't normally contribute to the 401(K) plan, it is very possible that your company will not pass the testing without limiting your contributions.

All that having been said, contact your benefits administrator if you need more information about your company plan and whether you specifically are/will be designated as an HCE and, if so, what effect they expect it might have on your contributions.