GOP lawmakers have been considering changes to the 401(k) structure, such as limiting the amount of
tax-deferred contributions employees can make, as a way to help finance tax cuts.
Without this safe harbor, low plan participation among middleand lower-income workers might limit allowable
tax-deferred contributions from key employees of the sponsoring company, including the business owner or owners.
Tax-deferred contributions (federal and state income tax, where applicable),
Catch-up contributions are additional
tax-deferred contributions and are separate from regular TSP contributions.
A solo or self-employed 401(k) combines a profit-sharing plan with a 401(k) plan and allows a sole owner-employee to make greater
tax-deferred contributions than would be permitted under the others.
Fortunately, a 401(k) look-alike plan allows executives to overcome this discrimination by permitting
tax-deferred contributions to a nonqualified retirement plan.
Most Americans are now familiar with 401(k) plans epitomized by employee
tax-deferred contributions (often with a company match).
Individuals who choose this option can supplement their individual accounts with additional
tax-deferred contributions.
The statutory yearly limit on
tax-deferred contributions to a 401(k) plan is $8,475--not much for a highly compensated executive.
Also keep in mind that, starting in 1997, both spouses can make
tax-deferred contributions of up to $2,000 each to an IRA.
