Which statements accurately describe limits that apply to qualified defined contribution plans?

Which statements accurately describe limits that apply to qualified defined contribution plans?

• A. II and IV
• B. II, III, and IV
• C. I, II, and IV
• D. I and II

Answer: (C)

Limits on contributions to qualified defined contribution plans are about how much can be contributed in a given year and which amounts are included in those limits. The statements that accurately describe these limits cover three key areas: how much an employee can defer through elective deferrals (including catch-up contributions for those age 50 and older); how much can be contributed to a participant’s account in total from all sources in a year (the annual additions limit, which includes employee deferrals, employer contributions, and forfeitures); and the cap on compensation used to determine these contributions (the compensation limit that limits how much earnings can be counted for purposes of the limits). These points explain why the correct set includes statements I, II, and IV. A statement that misstates any of these—for example, claiming catch-up contributions don’t count toward the annual additions limit or mischaracterizing what counts toward that limit—would be incorrect.

Limits on contributions to qualified defined contribution plans are about how much can be contributed in a given year and which amounts are included in those limits. The statements that accurately describe these limits cover three key areas: how much an employee can defer through elective deferrals (including catch-up contributions for those age 50 and older); how much can be contributed to a participant’s account in total from all sources in a year (the annual additions limit, which includes employee deferrals, employer contributions, and forfeitures); and the cap on compensation used to determine these contributions (the compensation limit that limits how much earnings can be counted for purposes of the limits). These points explain why the correct set includes statements I, II, and IV. A statement that misstates any of these—for example, claiming catch-up contributions don’t count toward the annual additions limit or mischaracterizing what counts toward that limit—would be incorrect.