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New Roth 401k and contribution limits for 2006


The 401(k) is undergoing its most significant change in 25 years. This year not only can you can put more money than ever before in your 401(k) but you can also add a Roth option. The Roth option allows you to keep part of your nest egg completely tax-free, according to retirement plan experts at Lamaute Capital (

Roth 401(k) Contributions
Beginning in 2006, your 401(k) plan may be amended to allow you to put all or a portion of your salary deferral into a special Roth section. Contributions to the Roth section are with after-tax income, so these contributions will not reduce your taxes immediately. However, unlike with other retirement funds, Roth distributions are tax-free for all your contributions and earnings from the Roth account - provided certain requirements are met.

Maximum Salary Deferral Contribution – This year the maximum that can be contributed from salary deferrals to a 401(k) is $15,000 plus up to $5,000 “catch-up” contribution for those age 50 or more, for a total of $20,000. Salary deferral contributions to a traditional 401(K) are pre-tax and thus reduce the amount of your salary subject to taxes.

Maximum Profit Sharing Contribution - The maximum that can be contributed from the business to your 401k account is 25% of your income or $44,000, whichever is less. The profit sharing contribution is not taxed as income to you until distribution.

Maximum 401(k) Contribution - The maximum (salary deferral + profit sharing) that can be contributed to a 401k in 2006 is $44,000. Counting the added contribution of up to $5,000 in “salary deferral catch-up” that is allowed for those 50 years or older, brings the total possible contribution to $49,000. Contributions to retirement plans cannot exceed 100% of earned income and they can be made as soon as the income has been earned.

Many experts believe that the added complexity of the 401(K) with its Roth option and larger contribution limits will drive more and more plan participants to seek professional advice when it comes to their retirement savings.

Lamaute Capital, specializes in retirement plans for small business and entrepreneurs. The firm was one of the first to market the Solo 401(k) plan with a loan feature for self-employed individuals.


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