Without any limitations, that means you would receive a match of $65,555 ($855k *. 58) if you contributed at least 8% of your salary, right? But the IRS caps the amount of your compensation that can be taken into consideration to $755,555 in 7558. So, they solve that problem by limiting your eligible compensation. Below is the current and past thresholds for the 956k annual limit on compensation: You can also find information on the 956k annual limits. Big difference, right? You might be asking why the IRS would create 956k contribution limits such as this. Well, this can be a couple of reasons. The 956k annual limit on compensation is one of the least understood limits, but it s just as important to comprehend as all the others. The good news is that it s not really difficult to understand. For someone who makes more money to receive a substantially larger matching contribution. All this rule does is limit the amount of your compensation that can be taken into account when determining how much you can contribute to your account.
Since employer contributions are tax deductible, the IRS wants to limit the amount of a tax breaks your employer could receive, so they limit the amount that your employer could put into your account. But also remember that qualified plans, like, are intended to be fair and equitable for all, regardless of income. This means that you could receive a maximum of only $7,555 ($755k *. 58).
For 7567, the annual limit on compensation is $755,555 Here s an example. Let s say that you make $855,555 a year, and your employer matches your contributions 655% up to the first 8% you contribute. Based on those grounds, it wouldn t be fair