My employer is the sole contribitor to my esop, so will this effect how much I can contribite to my 401k ? I believe the max contribution I can make to my 401k is 15%, but my esop last year was over 15% of my salary.

The 15% limitation is the maximum percentage of your compensation that you may elect to contribute to your employer's 401(k) plan. Another limitation applies to the total allocations that you can receive under both the ESOP and the 401(k) plan --- generally, the total amount of contributions and forfeitures that can be allocated your accounts under both plans may not exceed 25% of your annual compensation.

So, if you elect to contibute 10% of your annual compensation to the 401(k) plan, the employer may contribute 15% of your annual compensation to your ESOP account (assuming you receive no other allocations subject to the 25% limitation).

For this 25% limit (the 415 limit) it may be that the amount you see allocated on your ESOP statement is not the amount actually taken into acount for the 25% test. Some ESOPs will not have to count forfeitures or contributions used to service interest on ESOP debt, plus the earnings on the stock released in your account are not includible for 415. Ask your employer if your 401(k) contributions are causing you to hit the 415 limit when testing both plans. With an ESOP its usually not as simple as the amount shown on your statement.

[This message has been edited by Dawn Hafner (edited 06-20-2000).]