Retirement Plans Contribution Changes for 2006

Financial security and a good quality of life in retirement depend on the present contributions to your retirement plans. The Internal Revenue Code sets dollar limitations on benefits and contributions under qualified retirement plans. The IRS annually adjusts these limits to meet statutory requirements and cost of living increases. Outlined below are the 2006 contribution limits for select plans.

Maximum contribution limits
If you are under the age of 50 you can contribute the following amounts in 2006:

• 401(k) - maximum employee contribution limit is the lesser of 25% of compensation or $15,000.
• IRA - the maximum contribution is the lesser of $4,000 or earned income
• SIMPLE IRA - employee elective deferrals are limited to $10,000

Catch-up contributions limits
Taxpayers who will be age 50 or older in 2006 can increase the contribution limits by additional amounts (called catch-up contributions). Following are the catch-up contribution amounts for the above selected plans

• $5,000 for 401(k)
• $1,000 for IRA
• $2,500 for SIMPLE IRA. Generally, employers can match dollar for dollar up to 3% of salary.

For a Simplified Employee Pension (SEP) plans, the annual limit on the amount of employer contributions increased to the lesser of $44,000 or 25% of an eligible employee's compensation. Under a Defined Contribution Plan (Profit Sharing), the annual contribution limit is the lesser of $44,000 or 100% of the compensation actually paid to the participant. Maximum compensation limit for both plans have increased to $220,000.

For more information on these and other changes for 2006 give us a call.