From: "raylopez99" 
Newsgroups: misc.invest.financial-plan
Subject: Re: 401k with NO salary? [<= $92k/yr tax-deferred in Qualified Plan allowed!?!]
Date: 21 Sep 2005 09:10:50 GMT
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	=5lzB

Tad--thanks a bundle!  Very interesting information.  I did not realize
that there was a cap for Defined Contribution plans (which is what my
company has) of $42k (I assumed there was no such explicit cap, and to
play it safe was planning to treat the cap "as if" it was a 401(k))

Not to bother you, and don't go out of your way, but if you have an IRS
link or publ that discusses what the cap is for DC next year, in 2006,
please let me know.  I assume it is inflation adjusted.

Good stuff here--I also did not realize that for Defined Benefit plans
you need actuarial statistics (I did realize DB was more complicated
than DC, and that's one reason I picked DC, which can have "zero"
contributions).

BTW, I have a 'close corporation' where the EEs do not care if there's
no contribution (ie., they're not about to go on strike or quit, since
they're relatives and have other jobs).

Once again, thanks, I'll archive this thread, with the usual caveats
that you have to do your own due diligence with any information you get
on a Usenet group.

Cheers,

Ray

Tad Borek wrote:
> raylopez99 wrote:
> > Just to complete this thread for future reference, this article on
> > thestreet.com explains how you can defer up to $200k a year if you have
> > your own retirement plan (HR10 or Keough/Keogh).
> >
> > So I was right after all.
>
>
> Ray,
> I have to chime in here...all sorts of problems in this thread. You were
> talking before about Defined CONTRIBUTION plans. The annual contribution
> limits on those are capped at $42k in 2005, and that's combined - both
> employer and employee. You came up with a $92k figure, that's wrong, the
> law is "the LESSER of $42,000 or x% of Y." If you put $200k a year into
> a 401k, or any defined contribution plan, you're going to get a very
> expensive penalty someday.
>
> Defined BENEFIT plans - which is what that article you linked to
> discusses - can in theory accept much higher contributions, but only for
> a close-to-retirement individual with little or no money in the plan
> already. And only if you have an actuary come up with a reasonable
> projection of the plan's needs, to support the large contributions. But
> it's a completely different kind of plan and it didn't sound like your
> company has one.
>
> Bottom line though is that if you're looking to maxmize retirement plan
> contributions for a small business you control - hire someone to help
> you figure it out, it's too expensive if you get it wrong (and too easy
> to get it wrong).
> 
> -Tad