J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

7.18 Limit on Salary-Reduction Deferrals

Elective deferrals to a 401(k) plan must not exceed the annual tax-free ceiling; otherwise, the plan could be disqualified. If you also participate in a 403(b) tax-sheltered annuity plan (7.21) or simplified employee pension plan established before 1997 (8.16), the limit applies to the total salary reductions for all the plans and any excess deferral should be withdrawn as discussed below. Because of percentage-of-compensation limitations in your employer’s plan, you may be unable to make deferrals up to the annual tax-free ceiling. Also, certain highly compensated employees may be unable to take advantage of the maximum annual tax-free ceiling because of restrictions imposed by nondiscrimination tests.

Both the regular annual deferral limit ($17,000 for 2012) and the “catch-up” contribution limit for those age 50 or older ($5,500 for 2012) are subject to cost-of-living increases; see the e-Supplement at jklasser.com for whether the limits will be increased for 2013.

To avoid the strict nondiscrimination tests for employee elective deferrals and employer matching contributions, an employer may make contributions to a SIMPLE 401(k) (7.17).

An employer may make matching or other contributions, provided the total contribution for the year, including the employee’s pre-tax salary deferral and any employee after-tax contributions, does not exceed the annual limit for defined contribution plans, which for 2012 was the lesser of 100% of compensation ...