Expert: Allen - 11/8/2006

Question
I am 57 years old, resident of Colorado and established a Defined Benefit plan for 2006. I need to contribute $80,000 each year. My salary this year is $150,000.
I also have established an individual 401k and will contribute $20,000 as the employee contribution.
I'm assuming that combining the $80k with the $20k is allowable.  Please let me know.
Additionally, I would like to know if I can contribute an additional $29K into the individual 401k as an employer contribution and have that be allowable also.
Thanks in advance for your reply.

Answer
You can make the following contributions for 2006:
1. Defined benefit plan - the amount determined by your actuary; if he says $80,000, then this is correct.
2. 401k plan - the contribution to the salary deferral portion of the plan can be $20,000; if the plan also allows "profit sharing" contributions, you can contribute 6% of your salary to this portion of your plan.

Regarding the 6% piece, this is a new provision which was not allowed in earlier years. If you make this contribution, under certain circumstances the defined benefit contribution will be reduced.

Your actuary should be providing these figures to you. I normally don't use this forum as a means of obtaining business. However, we may be able to help you. If you are happy with your actuary, stay with him. If you aren't and want to discuss the alternatives, you can call me at 301-762-6600.