Increased Contribution Limits
For Employer-Sponsored Retirement Plans
You can now contribute more pre-tax dollars to your employer-sponsored qualified retirement plan! Find out the details on the new contribution limits outlined below.
401(k), 403(b), & 457 plans
The total amount of annual elective deferrals you can contribute increased for 401(k), 403(b), and 457 plans to:
|
Year |
Limit |
| 2004 | $13,000 |
| 2005 | $14,000 |
| 2006 | $15,000 (indexed in $500 increments thereafter) |
SIMPLE plans
The total amount of annual elective deferrals you can contribute also increased to:
|
Year |
Limit |
| 2004 | $9,000 |
| 2005 | $10,000 (indexed in $500 increments thereafter) |
All plans
Contributions are usually expressed as a percentage of pay. The maximum compensation amount that can be taken into account when determining percentage of pay increased to $200,000 in 2002. After 2002, the limit is indexed in $5,000 increments:
|
Year |
Limit |
| 2004 | $210,000 |
| 2005 | $215,000 |
| 2006 | $220,000 |
IRS limits
The IRS limits the total amount that can be contributed to a retirement plan on your behalf in a given plan year (includes any employer contributions). These limits have also increased:
- Defined contribution plans
- The limit increased from the 25 percent of pay or $35,000 (whichever is less) to 100 percent of pay or $40,000 (again, whichever is less). After 2002, the limit is indexed in $1,000 increments.
- Defined benefit plans
- The limit increased from 100 percent of a three-year average pay or $140,000 (whichever is less) to 100 percent of pay or $160,000 (again, whichever is less). After 2002, the limit is indexed in $5,000 increments.
What the changes mean for you
This means you may be able to save more on a pre-tax basis and watch your retirement account balance grow tax-deferred. In other words, you pay yourself first instead of the government! You defer paying taxes on the money you contribute, as well as any company contributions and investment earnings, until money is withdrawn from the plan. Of course, there may be tax penalties if you take the money out prior to age 59 1/2.
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For IRAs
You can now contribute more dollars to your IRAs! Find out the details on the new contribution limits outlined below.
Traditional IRA and Roth IRA
The total amount you can contribute annually increased from $2,000 to:
|
Year |
Limit |
| 2002 - 2004 | $3,000 |
| 2005 - 2007 | $4,000 |
| 2008 | $5,000 (indexed thereafter) |
Deductibility limits in traditional IRAs and income limitations in Roth IRAs will still apply.
Education IRA
- The total amount that can be contributed annually increased from $500 per child to $2,000 per child.
- The education IRA will be renamed to an Education Savings Account to more accurately reflect their purpose.
- Withdrawals will be tax free if used for elementary, high school, or college costs.
What the changes mean for you
This is great news. Now you'll be able to save more in all types of IRAs while continuing to receive the advantages of a tax-deferred investment. And, since contributions to an IRA are separate from those made to your employer-sponsored retirement plan, you'll be able to save more in both types of retirement savings vehicles.
