HOW MUCH MONEY CAN THE EMPLOYER CONTRIBUTE TO THESE PLANS ANNUALLY?
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Your retirement investments can add up to a sizeable nest egg after
20 or more years, particularly if your employer also contributes to your savings.
Here are the allowable employer contributions for several common retirement
If you participate in a 401(k) plan, your employer may contribute
up to 100 percent of your compensation or $42,000, whichever is less. Employer
contributions, however, are not required.
If your employer offers a SIMPLE IRA, he generally must match
your contribution up to 3 percent of your compensation. Your employer also has
the option of electing a matching contribution that is less than 3 percent--but
at least 1 percent--for up to two years during the five-year period ending with
(and including) the year for which the election is effective. Alternatively,
your employer may make a fixed contribution of 2 percent of your compensation
up to $210,000 in compensation; if your employer elects the fixed contribution,
he must make the 2 percent contribution for all employees with at least $5,000
If you participate in a SEP-IRA, your employer may contribute
a maximum of 100 percent of your compensation up to $42,000. If you also contribute
to the account, you and your employer's combined contributions may not exceed
$42,000 per year. Be aware, however, that the Internal Revenue Code does not
require your employer to contribute to a SEP-IRA every year.
If you have a Keogh plan that is a defined contribution plan (for
example, a money purchase plan or a profit-sharing plan), your company may contribute
up to the smaller of $42,000 or 100 percent of your compensation annually. If
you participate in a Keogh plan that is a defined benefit plan, your company
may contribute no more than the amount needed to fund an annual retirement benefit
that is no larger than the smaller of $170,000 or 100 percent of your average
taxable compensation for your highest three consecutive years.
If you participate in a 403(b) plan, your and your employer's
contributions may not exceed the lesser of $42,000 or 100 percent of your annual
Your employer's contributions can help you build a retirement
nest egg faster than you could with only your own contributions. Taken together,
employer and employee contributions can provide a sizeable accumulation and
a sizeable portion of your retirement income.