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They could be. The federal
government wants to make sure that everyone has a fair chance to benefit from 401(k)
plans. Since it would be unfair to allow people who earn high salaries to save
substantially more than their lower-paid co-workers, there are special anti-discrimination
tests that plans must pass. If a plan fails, the "highly compensated"
participants in that plan will likely see their contributions capped, or even refunded (at
least in part).
Any "highly compensated employee" contribution limits for a given year are based
on your salary for the previous year. Thus, you are considered a "highly compensated
employee" in terms of your 401(k) contributions for 2000 if your salary in 1999 was
more than $80,000 or if you owned 5% or more of your company. (You will be considered a
highly compensated employee for 2001 if your salary in 2000 is more than $85,000 or if you
own 5% or more of your company.)
Additionally, current law forbids employees from making 401(k) contributions or receiving
matching contributions for any compensation over $170,000. |
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