Limits & General Rules

401(k) and Profit Sharing Plans

Contribution Limits

• Employee deferral limit is $15,500 for 2007.
• Catch-up contributions (Age 50 or older) is $5,000.00 for 2007.
• Combined employer and employee contribution limit is $45,000.00 [$50,000 if using catch-up] for the year 2007.

General Rules
A traditional 401(k) plan allows eligible employees to make pre-tax elective deferrals through payroll deductions. In addition, in a traditional 401(k) plan, employers have the option of making contributions on behalf of all participants, making matching contributions based on employees’ elective deferrals, or both. These employer contributions are subject to a vesting schedule which provides that an employee’s right to employer contributions becomes nonforfeitable only after a period of time, or be immediately vested. Rules relating to traditional 401(k) plans require that contributions made under the plan meet specific nondiscrimination requirements. In order to ensure that the plan satisfies these requirements, the employer must perform annual tests, known as the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests, to verify that deferred wages and employer matching contributions do not discriminate in favor of highly compensated employees.

Safe Harbor Plans

Contribution Limits

• Employee deferral limit is $15,500 for 2007.
• Catch-up contributions (Age 50 or older) is $5,000.00 for 2007.
• Combined employer and employee contribution limit is $45,000.00 [$50,000 if using catch-up] for the year 2007.

General Rules
A safe harbor 401(k) plan must provide for employer contributions that are fully vested when made. These contributions may be employer matching contributions, limited to employees who defer, or employer contributions made on behalf of all eligible employees, regardless of whether they make elective deferrals. The safe harbor 401(k) plan is not subject to the complex annual nondiscrimination tests that apply to traditional 401(k) plans and if the company does not provide any additional contributions in a year are exempt from top-heavy rules.

SIMPLE 401k Plans

Contribution Limits

• $10,000 for 2007.
• Catch-up contributions (Age 50 or older) is $2,500.00 for 2007.

General Rules
A SIMPLE 401(k) plan is available to employers with 100 or less employees who received at least $5,000 in compensation from the employer for the preceding calendar year. Employees who are eligible to participate in a SIMPLE 401(k) plan may not receive any contributions or benefit accruals under any other plans of the employer.

403(b) Plans

Contribution Limits

• Employee deferral limit is $15,500 for 2007.
• Catch-up contributions (Age 50 or older) is $5,000.00 for 2007.
• Combined employer and employee contribution limit is $45,000.00 [$50,000 if using catch-up] for the year 2007.

General Rules
Generally, only your employer can make contributions to your 403(b) account. However, some plans will allow you to make after-tax contributions.  The following types of contributions can be made to 403(b) accounts: elective deferrals, non-elective contributions, after-tax contributions, or a combination of the contributions listed above.

Roth 401(k) Plans

Contribution Limits

• Employee deferral limit is $15,500 for 2007.
• Catch-up contributions (Age 50 or older) is $5,000.00 for 2007.
• Combined employer and employee contribution limit is $45,000.00 [$50,000 if using catch-up] for the year 2007.

General Rules
This plan combines features of the traditional 401(k) with those of the Roth IRA. It is an employer sponsored plan like a regular 401(k) plan, but as with a Roth IRA, contributions will be made with after-tax dollars. While you won't get an upfront tax-deduction, the account will grow tax-free, and withdrawals taken during retirement will not be subject to income tax, provided you're at least 59 1/2 and you've held the account for five years or more.

Defined Benefit Plans

Contribution Limits

Limits are defined in respect to age, compensation, and nondiscrimination requirements set forth by the IRS using various permitted disparity factors.

General Rules
Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. Actuarial assumptions and computations are required to figure these contributions.

457 Plans

Contribution Limits

• Employee deferral limit is $15,500 for 2007.
• Catch-up contributions (Age 50 or older) is $5,000.00 for 2007.
• Combined employer and employee contribution limit is $45,000.00 [$50,000 if using catch-up] for the year 2007.  May qualify for other catch up provisions.
• If an employer offers a 403(b) or 401(k) plan in addition to a 457 plan, an employee can defer the maximum to both plans.

General Rules
Plans of deferred compensation described in IRC section 457 are available for certain state and local governments and non-governmental entities tax exempt under IRC 501. They can be either eligible plans under IRC 457(b) or ineligible plans under IRC 457(f). Plans eligible under 457(b) allow employees of sponsoring organizations to defer income taxation on retirement savings into future years. Ineligible plans may trigger different tax treatment under IRC 457(f).

Distributions:

General Rules

Distributions generally occur when one of the following distributable events occur:

• Death
• Disability
• Severance of employment
• Attainment of age 59 ½.             

     
Other distributions may be allowed depending on the terms of the plan such as loans or hardships.

        Hardships:  Must be due to a heavy and immediate financial need. If a loan option is used in the plan, then the participant must use the loan program first.  Participants must suspend elective deferrals for at least 6 months.  Hardships may be limited to the following safe harbor definitions (check your plan document):

1. Expenses for medical care
2. Purchase of a primary residence
3. Payment of tuition for post-secondary education
4. Payment to prevent eviction or foreclosure on the employee’s principal residence.
5. Payments for burial or funeral expenses

Loans:  The limit is the lesser of $50,000 or 50% of the vested account balance. The limit is adjusted for any outstanding loans. Loans generally must be repaid within 5 years. Missed payments could cause the loan to be considered a deemed distribution.

The plan may permit a $10,000 de minimis loan. The plan may also permit a minimum amount to be taken, such as $1,000.00.  Refinancing and replacement loans may be permitted. (Please review your plan document for these loan provisions.)