Tax Law Changes Allow Employees to Contribute More to Tax-Deferred Accounts

Research Report

Tax Law Changes Allow Employees to Contribute More to Tax-Deferred Accounts

December 19, 2005

Abstract

Since 2001, the dollar limit on employee contributions to employer-sponsored tax-deferred retirement accounts has increased from 32 percent of average earnings ($10,500) in 2001 to 39 percent of earnings in 2006 ($15,000). Employees over age 50 may make additional "catch-up" contributions, which will raise the total dollar limit for them to 52 percent of average earnings in 2006. But very few employees contribute the maximum allowable amount. Of those participating in plans, only 6 percent contributed the maximum amount in 2003. Additional increases in the contribution limit are likely to reduce the share of those who contribute the maximum.

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