2005 Tax Law Changes - Qualified Plans

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Summary

The following changes apply to qualified plans. For more information, see Publication 560, Retirement Plans for Small Business.

Limits on Contributions and Benefits

For years ending after 2004, the maximum annual benefit for a participant under a defined benefit plan increases to the smaller of the following amounts.

  • 100% of the participant's average compensation for his or her highest 3 consecutive calendar years.
  • $170,000 (subject to cost-of-living increases).

For years beginning after 2004, a defined contribution plan's maximum annual contributions and other additions (excluding earnings) to the account of a participant increases to the smaller of the following amounts.

  • 100% of the compensation actually paid to the participant.
  • $42,000 (subject to cost-of-living increases).

Compensation Limit

For 2005, the maximum compensation used for figuring contributions and benefits increases to $210,000.

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