Question

The $19,500 limit (as indexed) on an employee's total annual deferrals in a 401(k) plan relates to all of the following EXCEPT:

a. the employee's tax year, not the plan year.
b. the total of all 401(k) plans in which the employee was a participant.
c. only the participant, even if the participant is a 5% owner with family members also participating.
d. marital status.

Answer 1

The $19,500 limit on a 401(k) plan is unrelated to the employee's marital status and applies to all plans the employee is involved in, making it a characteristic of defined contribution plans.

Step-by-step explanation:

The $19,500 limit on an employee's total annual deferrals in a 401(k) plan is related to the amount an employee can contribute to their retirement accounts on a pre-tax basis. This limit refers to the employee's contributions within a tax year and applies to the total of all 401(k) plans in which the employee participates, regardless of whether the employee is a 5% owner with family members also participating. Thus, this limit is independent of the marital status of the participant. Unlike traditional pensions, which are defined by the amount a retiree would receive, defined contribution plans like 401(k)s and 403(b)s rely on the amount invested and the real rates of return on those investments. The portability of these plans also offers a key advantage for mobile employees who change jobs.