In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service (the “IRS”) discusses the various types of retirement plan contributions which may be made. Here is what the IRS says:
Types of Retirement Plan Contributions
If you participate in an employer-sponsored retirement plan, you may be able to make different types of plan contributions from your wages:
• Pre-tax elective deferrals aren’t included in your gross income in the year that you make them. For example, if you asked your employer to contribute $2,000 from your $30,000 salary to the plan, you’d only include $28,000 in income. You must include these contributions, plus any earnings, in your income when you later withdraw them.
• Designated Roth contributions are elective deferrals that are included in your gross income in the year you make them, but not when you withdraw them from the plan. If you meet certain conditions, you don’t have to include any earnings on these contributions in your income when you withdraw them.
• After-tax employee contributions are also included in your gross income in the year you make them. You don’t include these contributions in income when you withdraw them, but you must include any earnings. Unlike elective deferrals, there isn’t an annual dollar limit on the amount of these contributions you can make, but if you’re a highly compensated employee, your after-tax employee contributions may be limited by what other employees contribute.
• Catch-up contributions are additional elective deferrals you may be able to contribute to the plan if you’re age 50 or older by the end of the calendar year. You can make these contributions as pre-tax elective deferrals or designated Roth contributions (if your plan allows them) or any combination of the two.
Elective deferral limits:
• $17,500 to 401(k) (other than a SIMPLE 401(k)), 403(b) and 457(b) plans (plus $5,500 catch-up contributions)
• $12,000 to SIMPLE plans (plus $2,500 catch-up contributions)
• $18,000 to 401(k) (other than a SIMPLE 401(k)), 403(b) and 457(b) plans (plus $6,000 catch-up contributions)
• $12,500 to SIMPLE plans (plus $3,000 catch-up contributions)
Ask your employer or check your summary plan description to find out which types of contributions you can make to your workplace retirement plan.