Q11. What are the contribution limits in retirement plans?
A11. There are a few different types of contribution limits that apply to retirement plans:
- Salary deductions: You may contribute up to $17,000in 2012 from salary deductions if you have a 401(k) or 403(b) plan. You must have at least $17,000 in earned income in order to be eligible for this maximum contribution.
- The $17,000 limit applies whether you are contributing on a pre-tax or after-tax (Roth) basis – $17,000 is your total contribution limit
- Catch-up contributions: You may contribute an additional $5,500 in salary deductions in 2012 if you will attain age 50 before the end of the year.
- Company contributions: Your company may contribute additional amounts to your defined contribution plan account. These contributions may be in the form of a match of your salary deductions, or a “profit sharing” contribution or both. The maximum overall contribution limit in 2012 is $50,000 including your salary deductions and all company contributions.
- Pension contributions: If your company maintains a Defined Benefit pension plan, contributions are required to keep the plan within the minimum funding levels. Contributions are made on a plan level, not a participant level, so specific dollar amounts are not available.
- Rollover contributions: You may rollover any amount into your retirement plan from another retirement plan or IRA. Rollover contributions are not counted in any of the contribution limits outlined here
Special note: The Department of the Treasury updates these contribution limits every year. Check the BRI website for this year’s limits.
Q12. Can I manage the investments in my retirement account any way that I want?
A12. Many plans offer the participants the opportunity to invest the funds within their account, but there are usually some limits and/or restrictions. Following are some guidelines – check with your Plan Administrator, or contact us here at BRI to help you understand the options available in your plan.
- Fully participant directed: If your plan offers you the opportunity to direct all of the money in your plan, then your plan is fully participant directed. You will typically have a menu of investments from which to choose within an investment platform. Work with the plan’s investment advisor or your own personal advisor to determine the best investment mix for you.
- Partially participant directed: Some plans offer you the opportunity to direct some of the money in your plan, but not all of it. In many cases, the participant is allowed to direct the account that holds his or her own contributions, but he plan trustees manage the money contributed by the employer.
Special note: Most plans that allow the participants to direct the investments in their account take advantage of rules that protect the employer from liability for the decisions that you make for your investments. We strongly recommend that you research your options carefully, and ask for help from professionals.
- Trustee directed: All defined benefit pension plans and some defined contribution plans have the investments managed by the plan trustees. Typically the trustees will work with professional money managers to assist in designing a well-balanced portfolio.
Your best resource for questions about your plan is your HR director and your Summary Plan Description. If you have questions that are not answered here, or if you’re looking for unbiased advice, call us here at BRI.
