Can Over 50 Working Send Most of Part Time Income to 401K?

You are correct that the max contribution for someone who has attained age 50 is $22K. However, that person will not be able to shelter $22K from tax because contributions to an employer 401K are by payroll deduction as a percentage of compensation. The percent is capped for a variety of different reasons. Most of the plans I have seen over the years are capped at 10%.

Of course, you are limited by the percentage the employer allows. My company was at 25% for the longest time, then a few years ago went to

I probably should have said, that 100% is theoretically possible as a percentage as the law does not specify a maximum rate. I have no doubt that in very small closely held companies the owner(s) might want to set the maximum percentage to 100%.

It's not just small companies that have high contribution limits. Employees of the University of California have a limit of 75% on

Here is where I am getting confused. One source online has two different limits for the percentage of pre-tax income that can be put into 401K:

"Some plans also have a profit-sharing provision where employers make additional contributions to the account and may or may not require matching contributions by the employee.... These profit-sharing contributions...cannot exceed 25% of the employee's pre-tax compensation. As with the matching funds, these contributions are also made on a pre-tax basis."

"There is also a maximum 401k contribution limit that applies to all employee and employer 401k contributions in a calendar year. This limit is the section 415 limit, which is the lesser of 100% of the employee's total pre-tax compensation or $44,000 for 2006, $45,000 for 2007, $46,000 for

The first paragraph seems to say that the employer profit share cannot exceed 25% of the pretax income.

The second paragraph seems to say that the employee can contribute the lesser of 100% of pre tax compensation or $49K.

Say the part time employee makes $16.5K/year. If I take those two together, that almost implies that the employee can defer 100% of their income if it is under $16.5K, but they can also receive an additional $4125 of profit share tax free. So someone who makes $16.5K / year could end up deferring $20,625 each year. I am not complaining, but those conditions seem *so* much more generous than any IRA plan that it makes me think I must be misunderstanding some part of it.

Assuming the plan is a safe harbor 401K, what are the limitations on:

3) The percent of the employee's income that can be contributed as a profit share match. If I read the above correctly, it is an *additional* 25% of the pre-tax compensation. Are they calculating that pre-tax compensation using the number *prior to* the contribution to 401K?

Here's how it works:

1. Annual contribution by an employee is limited to the lesser of 100% of pretax pay or ,500 (,000 if age 50).
2. An employer match can not exceed 6% of pay.
3. If there is a profit sharing component the maximum an employer can contribute is limited to 25% of pay. This includes the profit share component plus any employer match.
4. The maximum contribution including the employer and employee is the lesser of 100% of pay or ,000.
5. The maximum amount of pay that can be considered in all these formulas is 5,000.

And finally, there are other limits based on the nondiscrimination rules. However, you asked about a safe harbor plan, so those rules don't matter.

compensation. As

compensation

Is there any limit on the amount of a corporate profit share as a percentage of the corporation's net income?

Item 4: The $49000 limit also gets the age 50 kicker of $5500.

I'm not aware of any rule that limits the amount of pre-tax profit that can be contributed to a profit-sharing plan.