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Maxing out on 401(k) deferrals

by on
in Hiring,Human Resources

Q: Your recent article on hiring your spouse got me thinking (see 4/18/05 issue). If the spouse is the owner's wife and is a highly compensated employee, can she defer the maximum amount of salary to a 401(k) account? P.T., via e-mail

A: Yes, she can. For 2005, the maximum salary amount that a qualified participant can contribute to a 401(k) is $14,000. That limit is increased by $4,000 for taxpayers who are age 50 or older. Those maximum limits are still available to highly compensated employees if the plan passes the 401(k) nondiscrimination tests. Tip: You can assure your plan meets the requirements by adhering to one of the law's "safe-harbor rules." The rules are complex, so consult your tax pro.

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