SEPs
		SIMPLEs
		Qualified (Keogh) plans
		Contribution limits
		Contribution requirements
		Defined-contribution plans
		Defined-benefit plans
		Funding plans with stock

The following list summarizes contribution limits for 2007 for the major types of small-business retirement plans covered so far in this educator. The list also includes contribution limits for traditional 401(k) plans.

For purposes of calculating contributions, compensation is generally limited to $225,000 for 2007.

• SEP-IRAs. If you set up a SEP plan, the most you can contribute to each SEP-IRA in 2007 is the lesser amount of 25% of compensation or $45,000. If you contribute to your own SEP-IRA as an employee, you are required to include the amount of your contributions in your net earnings from self-employment. As a result, your effective contribution rate is lower, at 20% of compensation. This rate is called your self-employed rate.
  
  
• SIMPLE plans. The two main types of SIMPLE plans are SIMPLE-IRAs and SIMPLE-401(k)s. SIMPLE-IRAs are used more often than SIMPLE-401(k)s, which have high fees. If you make elective contributions, employees can use a salary-reduction plan to contribute up to $10,500 in 2007 ($13,000 if 50 years of age or older). If self-employed and contributing to your own account, you can contribute the same amount to your account. Contribution limits are indexed to inflation beginning in 2006.
  
  If, as an employer, you make matching contributions, you can match, dollar for dollar, up to 3% of the employee's compensation. If self-employed, you can contribute the same percentage to your account. If you make non-elective contributions, you can make fixed contributions of up to 2% of employee compensation.
  
  
• Qualified defined-contribution plans. Qualified plans include money purchase pension and profit-sharing plans. You can contribute the lesser amount of 25% of compensation or $45,000 in 2007. For either of these plans, you are required to include the amount of your contributions in your net earnings from self-employment. As a result, your effective contribution rate is lower, at 20% of compensation.
  
  
• Qualified defined-benefit plans. You can contribute amounts up to the lesser of a future benefit amount of $180,000 or 100% of the employee's average taxable compensation for the consecutive three-year period that includes his or her highest earnings.
  
  
• Traditional 401(k) plans. With a traditional 401(k) plan, employees can contribute up to the lesser amount of $15,500 or 100% of their compensation in 2007 ($20,500 if 50 years of age or older). If the employer makes matching contributions, total contributions to the account in a year may not exceed $45,000 in 2007 ($50,000 if 50 years of age or older during 2007). Beginning in 2006, employees may contribute to a Roth 401(k). The contribution limits are the same as for a traditional 401(k). Contributions to a Roth 401(k) will not reduce taxable income the way that contributions to a traditional 401(k) will. On the other hand, distributions from a Roth 401(k) will not be taxable the way that distributions from a traditional 401(k) will.

Next Topic: Contribution requirements