By Richard R. Hammar, J.D., LL.M., CPA
© Copyright 2001 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m63 c0103
Increase in contribution percentage limit for defined contribution plans. Prior to EGTRRA section 415(c) of the tax code limited the annual additions that could be made to a tax-qualified defined contribution retirement plan on behalf of an employee to the lesser of $35,000 (for 2001) or 25% of the employee’s compensation. Annual additions included employer contributions, including contributions made at the election of the employee (through elective deferrals of salary), and after-tax employee contributions.
EGTRRA increased the 25% of compensation limit on annual additions under a defined contribution plan to 100%. According to the congressional conference committee, the 25% limit was repealed because it has operated to reduce the amount that lower and middle-income workers can save for retirement. Further, conforming the contribution limits for tax-sheltered annuities to the limits applicable to retirement plans generally will simplify the administration of the pension laws, and provide more equitable treatment for participants in similar types of plans.
This change took effect in 2002.