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401K Max + catch up
Old 11-22-2016, 08:37 AM   #1
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401K Max + catch up

This is my first year maxing my 401K contributions. I am old enough to get the 24K vice the 18K. Silly me assumed I could withhold the 24K straight away. Pretty simple % stretched over 12 months right? Wrong. Turns out there is a whole separate section in my financial institutions web page for the catch up portion. So basically I have three pay days to totally fund the catch up portion (6K). Not a big deal. I think that I missed a few bucks matching from my company this last pay day because I didn't hit my 6%. Oh well. Now I know. When I start the new year I have to use one % withholding to make it to the 18K and a separate % withholding to get the additional 6K. I don't know why they complicate it like that. The IRS and everyone else has my DOB. It's not a big secret.
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Old 11-22-2016, 08:40 AM   #2
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I was able to contribute 75% until I was maxed out. The company figured out the $6K and when to stop making deductions.
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Old 11-22-2016, 08:40 AM   #3
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it's an election under a different section of the IRC

also, just because you front-load your k contributions doesn't mean you get short knocked on the match - most plans have a true up provision to handle it
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Old 11-22-2016, 08:45 AM   #4
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I think the OP is mistaken or the corporate web site is mistaken. Something similar happened to my spouse. She called up HR and they said "Oh, that's a a mistake!" and they fixed the web site within one hour.

Don't sit back and let people flaunt the rules. Call them up and get things changed. After all, the peeps doing this probably have never maxed out their 401(k) contributions and are not 49 years old or older.

But be aware that if you get a company match, some companies will not do a "true up" at the end of the year for folks who reach the maximum contribution amount earlier in the year.
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Old 11-22-2016, 08:51 AM   #5
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One rule in the 401k contribution handbook that makes absolutely no sense to me...

My company is allowed to contribute up to $35,000 to my 401K, and I'm allowed to contribute $18,000. So it's possible to get a max of $53,000 contributed to a 401K in 2016 but only if your company does the heavy lifting. Many smaller companies in my area have started taking advantage of this rule by factoring that in to employees salaries and contributing 20% to their 401K... regardless of matching. It's something you consider when looking at jobs (at least those interested in retirement savings).

So a person making $150,000 (Sr Computer Engineer salary) would get $48,000 put into their 401K if they contributed $18,000 themselves.

This begs the question... why is the IRS limiting people's ability to contribute their own money to just $18,000 when company+employee offers situations where people can manage to get over $50,000 a year into their 401K? I know the 150K salary isn't "normal" but in certain technology sectors it is obtainable in a career... however it seems like this rule wasn't put in place for these people, but rather corporate CEOs? Was it lobbied in there?

Maybe the $18K limitation is because the govt is worried about people contributing so much of their personal salary that they avoid taxes all together? I'm pretty sure ATM would take care of that though, right? Also... on top of that I'm pretty sure the corporation is getting a tax write off on the $35,000 they can contribute to the employee - so protecting tax revenue can't be the reason?
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Old 11-22-2016, 08:59 AM   #6
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Originally Posted by EvrClrx311 View Post
Maybe the $18K limitation is because the govt is worried about people contributing so much of their personal salary that they avoid taxes all together? I'm pretty sure ATM would take care of that though, right? Also... on top of that I'm pretty sure the corporation is getting a tax write off on the $35,000 they can contribute to the employee - so protecting tax revenue can't be the reason?
AMT is not affected by the k deferral. The IRC section is 402(g) - that's where the $18K is defined as an indexed limit.

The overriding limit is the 415(c) limit which is the sum of pretax, posttax and employer contributions to a DC plan for a plan year. That limit is indexed to $54K next year.

One thing to note is that the $6K catchup is a "freebie" meaning it isn't subject to the 415c limit. So the most one can have deposited into a k or profit sharing plan is $60K per annum.
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Old 11-22-2016, 09:18 AM   #7
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Interesting! So I'm still curious what was the purpose behind limiting the employee contribution to be so small (relatively speaking) vs. what the company is limited to. Is there any downside to letting people contribute $55,000 (or $60,000) on their own with or without the company being involved?
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Old 11-22-2016, 09:20 AM   #8
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Originally Posted by EvrClrx311 View Post
Interesting! So I'm still curious what was the purpose behind limiting the employee contribution to be so small (relatively speaking) vs. what the company is limited to. Is there any downside to letting people contribute $55,000 (or $60,000) on their own with or without the company being involved?
tax revenue - plus it's been shown that increasing the 402g limit doesn't necessarily increase deferrals, except for possibly highly compensated empoloyees
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Old 11-22-2016, 10:43 AM   #9
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My plans are similar to OP's. One has to choose a percentage for the basic contribution and the catch-up. Percentages can only be chosen to the nearest 0.1%, so there's some effort to max it out and still get the full match.

Previous Megacorp did the same, but only to the nearest 0.5%. Why they feel they can't accept hard dollar amounts is beyond me.
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Old 11-22-2016, 10:50 AM   #10
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we can do either percentages or hard dollars
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Old 11-22-2016, 12:19 PM   #11
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Originally Posted by EvrClrx311 View Post
Interesting! So I'm still curious what was the purpose behind limiting the employee contribution to be so small (relatively speaking) vs. what the company is limited to. Is there any downside to letting people contribute $55,000 (or $60,000) on their own with or without the company being involved?
Some folks would no longer pay taxes at the higher rates, and since the majority of folks earn $50K or less per year there is not enough popular demand to enrich the $150K earners (by paying less tax).

If people could contribute $55K per year as the IRA limit (no company involvement) it would be easy to imagine many people not paying any taxes.
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Old 11-22-2016, 12:41 PM   #12
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Does anyone else think their 401k account websites are dumbed down? For example, in order for me to figure out how many shares I have that are my contributions (100% vested), and how many are my employer's contribution (less than 100% vested), I have to do some cipherin'. I can get the dollar amount in each category, and the price per share, and the total number of shares, but not exactly what I'm looking for.

They also report the share price to 7 decimal places, but it's really only accurate to 4. The last 3 digits are always zeroes. Once upon a time, ML did this on their paper statements, but to get the math to work out after several years of reinvested dividends, etc., it had to be calculated to one more decimal than they revealed.

Ah, the curse of being an engineer.
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Look what happened to me...
Old 11-22-2016, 12:52 PM   #13
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Look what happened to me...

I had some extra cash earlier this year so I decided to put a couple hundred a paycheck into a Roth After Tax account...suddenly last paycheck I noticed I had a lot more take-home pay...when I checked I discovered they didn't take out my $700+ pre-tax 401k contribution nor did they take the Roth amount....the Payroll Company says I hit my $24k max...I swear the after tax didn't count against the pre-tax max....does it?
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Old 11-22-2016, 12:54 PM   #14
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the roth does, if it was a true "post-tax" contribution it wouldn't - don't see many of those nowadays
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Old 11-22-2016, 01:46 PM   #15
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Originally Posted by Bigdawg View Post
This is my first year maxing my 401K contributions. I am old enough to get the 24K vice the 18K. Silly me assumed I could withhold the 24K straight away. Pretty simple % stretched over 12 months right? Wrong. Turns out there is a whole separate section in my financial institutions web page for the catch up portion. So basically I have three pay days to totally fund the catch up portion (6K). Not a big deal. I think that I missed a few bucks matching from my company this last pay day because I didn't hit my 6%. Oh well. Now I know. When I start the new year I have to use one % withholding to make it to the 18K and a separate % withholding to get the additional 6K. I don't know why they complicate it like that. The IRS and everyone else has my DOB. It's not a big secret.


I thought the same thing and was doing $2,000 per month. I filled up the regular contribution of $18,000 after 9 months and was thinking it would continue as catch up. Nope, the catch-up had to be specified separately and was not going to get the match because they do not match on the catch-up. Luckily I found I could do a post tax contribution of 6% and I will still get the match.
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Old 11-22-2016, 03:19 PM   #16
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Originally Posted by prs42983 View Post
I had some extra cash earlier this year so I decided to put a couple hundred a paycheck into a Roth After Tax account...suddenly last paycheck I noticed I had a lot more take-home pay...when I checked I discovered they didn't take out my $700+ pre-tax 401k contribution nor did they take the Roth amount....the Payroll Company says I hit my $24k max...I swear the after tax didn't count against the pre-tax max....does it?
A Roth 401k is after tax and counts toward the $24k.
An After-tax 401k contribution (if offered) counts toward the $53k limit, but not the $24k limit.

Verify that they allow an after-tax 401k contribution, this is not always the case
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Old 11-22-2016, 03:24 PM   #17
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A Roth 401k is after tax and counts toward the $24k.
An After-tax 401k contribution (if offered) counts toward the $53k limit, but not the $24k limit.

Verify that they allow an after-tax 401k contribution, this is not always the case
correct
correct
correct
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Old 11-22-2016, 04:46 PM   #18
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I am on my third go-round this year with Employer, Provider, and Benefits Co.
It's like asking Manny, Moe and Jack to help with financials.

I changed my catchup, taking it down from $350 to $250 per pay so that I would not go past the 6K maximum this year. That was part of my planning, as I started it a few months into the year.

Next pay I notice that my payroll report said catchup YTD is only $250. I built a spreadsheet and send it to VP, and included an email to him from APRIL that went through all of this. I had made changes in the 401K provider site, and that was not carried out in APRIL.

After looking at my spreadsheet, he got back to me and said it wouldn't be a problem, as the employee contribution and catch-up are combined in W-2. He said it was wrong in payroll, and they can correct it...

My email back to him was one I didn't think I had to write. But it's important not to let things slide. Excuse me, but I made choices, and the payroll records will show my over-contributing for the year. Fix the records and let me know when done.
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