If I Have More Than One Employer Can I Have More Than One 401k
Limit Of $14 000?

One of the questions we get asked a lot is, I know the limit
that the IRS puts on my 401k contributions for the year is
$14000 (for a person under 50) (2005) but is this the limit I
can get from one employer or is it the total amount I can get
from all my employers? So if I had 5 jobs could I get a total of
$70 000 5 x $14 000 in contributions?
The simple answer is $14 000 is the personal limit you have as
an individual and there for the total from all your employers,
so if you have more than one employer then between you all the
total that can be added for each year is $14 000 If you do over
pay into the plans you have, it is easy to do if you are running
more than one plan with more than one employer making
contributions, you can claim back the overpayments but the claim
must be made by 15th March
The part of the IRS guidelines that causes a lot of confusion
with reference to these limits is this paragraph;
“Additional limits There are other limits that restrict
contributions made on your behalf In addition to the limit on
elective deferrals, annual contributions to all of your accounts
- this includes elective deferrals, employee contributions,
employer matching and discretionary contributions and
allocations of forfeitures to your accounts – may not exceed the
lesser of 100% of your compensation or $42,000 (for 2005,
$44,000 for 2006) In addition, the amount of your compensation
that can be taken into account when determining employer and
employee contributions is limited In 2005, the compensation
limitation is $210,000; for 2006, the limit is $220,000″
Now a lot of people ask us at http://wwwthe401kinfo how the
limit can be $42 000 and this is the best explanation we have
seen so far,
Ok, let’s say you make $260,000 per year, your plan allows you
to defer up to 100% of your compensation, and your employer
matches all your deferrals up to 3% of your compensation plus
makes a 5% profit sharing contribution to all participants In
your case, for 2006, you could defer the maximum legal limit of
$15,000 (roughly 68% of your legally capped compensation of
$220,000), receive a match of $6,600 (3% of your legally capped
compensation) plus $11,000 in profit sharing contribution (5% of
your legally capped compensation), for a total of $32,600, well
below the $44,000 overall contribution limit If, however, your
employer decided to make a 15% profit sharing contribution
($33,000) instead of a 5% contribution, because the total of
these contributions exceeds the overall limit of $44,000 for
2006, your profit sharing contribution would most likely be
reduced so that you would not exceed the overall limit As you
can see, there are numerous limits applied in different
situations in different layers that must be adhered to
Paul Smith has been a tax specialist for 20 years, teaching and
working in the financial industries his free ebook is available
here http://wwwthe401kinfo get it now

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