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Each company decides on
contribution limits for its own plan, within the IRS guidelines. These limits generally
fall between 1% and 20% of a participant's salary. However, setting contribution limits is
no easy task.
On one hand, the company wants to help its employees reach their retirement goals and
maximize participation in the plan. But on the other hand, the company must be sure that
its plan complies with several government-imposed limitations and non-discrimination
tests. If even one employee exceeds the government-imposed limits, or if the plan doesn't
pass the non-discrimination tests, the plan could be disqualified (meaning it would no
longer be able to accept pre-tax contributions).
Needless to say, having your plan lose its qualified status is not a good thing. Most
employers are careful and conscientious when setting plan limits. |
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