Question

Chapter 10 - Question 10 :

Please give an explain on these items. Thank you

If an employee earning $60,000 had access to multiple plans, which combination would allow for the largest contribution, including both employer and employee contributions?

1.            401(k) plan and profit sharing plan.
2.            Governmental 457(b) plan and a 403(b) plan.
3.            Profit sharing plan and SEP.
4.            401(k) plan and a 403(b) plan.

Answer 1

In 401(k) plan , employees can voluntarily elect to make pre tax contributions through payroll deductions upto an annual maximum limit. It also permits employees age 50 & older to make additional catch up contributions upto annual maximum limit of $6000. Even employer often match some portion of the amount deferred by employee in order to encourage greater employee participation . Since 401(k) plan is a type of profit sharing plan, profit sharing contribution can be made in addition .

Hence, 401(k) plan and profit sharing plan will allow maximum contribution.

Thus, correct answer is option (a) .