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How do I contribute to my 401(k) plan? You contribute through automatic payroll deduction, which makes it easy and painless. You never see the money, so you never miss it. And because your 401(k) contributions are taxed deferred, they are worth more in the plan than they would be in your paycheck, where they'd be reduced by income taxes. What is the maximum I can contribute to my plan each year? The maximum that can be deferred into a 401(k) plan for 2005 is $14,000 or 100% of your gross compensation, which ever is less. If you are a highly compensated employee, there may be additional restrictions to the maximum amount you can contribute, please ask your plan administrator for additional information. How will my contributions be invested? That is up to you. When you enroll in a 401(k) plan, one of the things you have to decide is how you want to invest your contributions. Your plan sponsor will give you a choice of options in which you can invest. You can choose to put your entire contribution in one option, or divide it among several. What is a matching contribution? A matching contribution is an employer contribution that is allocated on the basis of a participant's contribution. The rate of matching contribution may be specified in the plan document or at the discretion of the employer. Matching contributions are subject to the plan's vesting schedule. What is a profit sharing contribution? This is an employer contribution that is allocated on the basis of compensation or in some manner other than on the basis of elective contributions. Profit sharing contributions are subject to the plan's vesting schedule.
A catch-up contribution allows participants 50 or older to make an additional contribution to the plan, in addition to the maximum allowable pretax contribution limit. For 2005, the catch-up contribution is $4,000. The catch-up contribution will increase $1,000 a year until reaching $5,000 in 2006.
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