Course: Retirement Planning
Lesson 2: Qualified Plan Advantages and Disadvantages for Employees and Business Owners
I understand below is an example, but it is possible to contribute $20k to a retirement fund like a Roth IRA? I thought the limit was $6k.
Acme, Inc. contributed $20,000 to Tarzan Smith’s qualified plan in Year 1. Tarzan will never pay Social Security tax or Medicare tax on the $20,000 employer contribution; he pays no income tax when the $20,000 is contributed to the plan and will only pay income tax when he takes a distribution from the plan.
Great question. The $6,000 limit is an IRA limit for taxpayers under age 50. Defined contribution category qualified plans may receive $57,000 in contributions for a participant under age 50. So, while that is not specified in the question here, it makes it possible. Please refer to the page Defined Benefit Category vs. Defined Contribution Category a few pages later in this lesson for some more “fun” information on this topic.