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401(k) limit as percentage of income

We know the employee deduction limit for the 401(k) is $15,500 for 2007 and 2008 (no increase next year), and if one turns 50 during the year, they have a $5000 catch-up addition. But I rarely see a percent limit mentioned, and googling hasn't helped, not has a search at IRS.gov.

I ask because while checking my Flexible Spending Account balance to submit the final receipts, I saw my benefit site had this note: "New: You can contribute up to 75% of your pay to the 401(k) plan, up to the annual IRS dollar limit." For what it's worth, the percent limit was 30% for this plan in 2007, and 2006. I'm curious if this is related to the "highly compensated" imbalance rules, where a 401(k) can have issues if they don't pass a complex set of rules which compare the deferrals of the higher compensated to the average, er, Joe employee, or if the IRS has a maximum percentage allowed, and I just can't find it.

I know someone will ask why in the world would one want to withhold such a high percentage? A) One spouse retiring, so total gross still high enough to justify the pretax savings. Work 3 months, max out the 401(k) and call it quits. B) Changing jobs, new employer may have a waiting period, same motive to max out early in the year. C) Just to front load the savings (and use liquid cash to get by those few months) and save post tax the rest of the year. D) Fear of layoff in second half of year. etc.....

JOE

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(I would like to wish both the regulars, and occasional visitors here, a happy healthy holiday week, and safe New Year. I am honored to be part of this newsgroup, both for the good work that it does and how while there's frequently some disagreement, there's always respect for each other and for our guests. I feel I am a better person for knowing you all and hope we make those who visit feel the same of us. - JOE)

Reply to
joetaxpayer
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The last 2 places I worked, the employee 401k contribution was limited to a percentage of income - I've never been able to contribute to the IRS dollar max, whether I could afford to do so or not. However, my husband's 457 had no such limit, and, in fact, he was allowed to defer as much as 100% of income, up to the dollar limit, of course. Although I haven't researched it lately, I seem to recall that the IRS has no percentage limitation, just the dollar limit.

The above comment typifies your attitude here, Joe, and that of so many others as you suggest. I, too, appreciate it. It feels as if the generous spirit of this season lasts through the year with the regulars here. Thank you to all of you for that generous spirit, and may next year be a prosperous and happy one for all of you.

Elizabeth Richardson

Reply to
Elizabeth Richardson

There isn't. As long as it's less than or equal to your income at the employer providing the plan. If you've got the cash available to live off of during the time it takes to max out the plan, you can set it to 100% if the employer's plan permits such (as mine currently does).

Nicely said, Joe. Thank you so much - you and all the others - and especially our kind and patient moderators. My very best wishes to you all for the holidays and the coming year.

Reply to
BreadWithSpam

I believe, although I couldn't swear, that my company limits regular contributions to 20% of salary. Catch-up contributions can be up to

50%, but of course that's only $5000 overall.

Brian

Reply to
Default User

It changed to years back to the overall limit. ANy plan/employer can be more strict that the law. Some may be using older plans or software from when there were percentage limits.

Reply to
rick++

The last place I worked, 401k contributions were limited to just 5% of income. That was because the employer also had a profit sharing plan. It was a shame for the lower paid employees who would have benefited greatly from additional contributions and for whom the profit sharing would not have put them over the statutory limit. These same employees were unlikely to have the discipline and savvy to contribute to IRAs, but might have contributed more to a 401k.

Elizabeth Richardson

Reply to
Elizabeth Richardson

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