Bob Brinker's Marketimer

  Monday November 20, 2017

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HOW MUCH MONEY CAN THE EMPLOYER CONTRIBUTE TO THESE PLANS ANNUALLY?
Learn even more about this topic with the Encyclopedia of Personal Finance™

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 plans:

• 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 in compensation.

• 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 compensation.

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.




LEARN EVEN MORE WITH THE ENCYCLOPEDIA OF PERSONAL FINANCE. CLICK HERE!

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