Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
penalities for being "highly" compensated
Old 02-04-2008, 03:15 PM   #1
Thinks s/he gets paid by the post
simple girl's Avatar
 
Join Date: Sep 2006
Posts: 2,505
penalities for being "highly" compensated

DH just found out because he made over 100K last year (just a little over) he is now classified as "highly compensated" by the company...as such, we are now restricted from contributing more than 10% to his 401K. This means we won't be able to contribute the full amount that is allowed to most individuals. It really stinks b/c it was just over 100K, and he likely will be under 100K this year.

Just posting to complain.

I guess that means more for the taxable account.
__________________

__________________
simple girl
less stuff, more time

(49, married; DH 53. I am fully retired as of 2015 (well ok, I still work part-time but only because I love the job and have complete freedom to call off if I want to travel with hubby for work), DH hopes to fully retire 2018 when he turns 55 to access 401K penalty-free...although he may decide to do part-time consulting)
simple girl is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-04-2008, 03:18 PM   #2
Full time employment: Posting here.
 
Join Date: Oct 2003
Posts: 961
Does he get access to the "highly compensated" dining room now?
__________________

__________________
ats5g is offline   Reply With Quote
Old 02-04-2008, 03:23 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Quote:
Originally Posted by simple girl View Post
DH just found out because he made over 100K last year (just a little over) he is now classified as "highly compensated" by the company...as such, we are now restricted from contributing more than 10% to his 401K. This means we won't be able to contribute the full amount that is allowed to most individuals. It really stinks b/c it was just over 100K, and he likely will be under 100K this year.

Just posting to complain.

I guess that means more for the taxable account.
Most likely his retirement plan was "top level tested" to make sure on an overall basis he can't contribute more than the guy trying to trade up his big screen TV for a bigger one each year.........
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Old 02-04-2008, 03:27 PM   #4
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,136
I think the "highly compensated" classification is tied to the max earnings taxable for SS - $97,500 in 2007, $102,000 for 2008. When you think about it, not a bad problem to have...
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 02-04-2008, 03:28 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Jan 2008
Posts: 2,020
When I was a highly compensated employee, I was capped at 4%. However, the company did offer a separate contribution plan and match for those of us in the overpaid pool. I don't recall it being all that good, though.
__________________
Marquette is offline   Reply With Quote
Old 02-04-2008, 03:28 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Quote:
Originally Posted by REWahoo View Post
I think the "highly compensated" classification is tied to the max earnings taxable for SS - $97,500 in 2007, $102,000 for 2008. When you think about it, not a bad problem to have...
That would not explain the lowering of the amount he can put into his 401K, though........
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Old 02-04-2008, 03:30 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Jan 2008
Posts: 2,020
Quote:
Originally Posted by FinanceDude View Post
That would not explain the lowering of the amount he can put into his 401K, though........
I'm fuzzy on the details, but I recall it that I was capped based on a multiple of the average contribution percentage. So, if the average for the company was 2% then I could contribute 4%.
__________________
Marquette is offline   Reply With Quote
Old 02-04-2008, 03:30 PM   #8
Thinks s/he gets paid by the post
retire@40's Avatar
 
Join Date: Feb 2004
Posts: 2,670
Quote:
Originally Posted by REWahoo View Post
I think the "highly compensated" classification is tied to the max earnings taxable for SS - $97,500 in 2007, $102,000 for 2008. When you think about it, not a bad problem to have...
The sad part is, I know a lot of people in that salary range that are broke.
__________________
No man is free who is not master of himself. --- Epictetus
Enjoy Yourself (It's Later Than You Think). --- Guy Lombardo
retire@40 is offline   Reply With Quote
Old 02-04-2008, 03:33 PM   #9
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,136
Has to do with the 401(k) not being a "safe harbor" plan, right? Until my old co went safe harbor, I was limited almost every year in what I could contribute due to the same HC rules. Two consecutive years I over contributed and got an unwelcome check back, right after filing my taxes. (Some of us are slow learners...).
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 02-04-2008, 03:38 PM   #10
Thinks s/he gets paid by the post
 
Join Date: Jan 2008
Posts: 2,020
Wikipedia to the rescue: 401(k) - Wikipedia, the free encyclopedia

"The average deferral percentage (ADP) of all HCEs, as a group, can be no more than 2% greater (or 150% of, whichever is less) than the NHCEs, as a group. This is known as the ADP test. When a plan fails the ADP test, it essentially has two options to come into compliance. It can have a return of excess done to the HCEs to bring their ADP to a lower, passing, level. Or it can process a "qualified non-elective contribution" (QNEC) to some or all of the NHCEs to raise their ADP to a passing level."
__________________
Marquette is offline   Reply With Quote
Old 02-04-2008, 04:01 PM   #11
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,136
Amazing how a simple explanation can clear up confusion...
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 02-04-2008, 04:08 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Jan 2008
Posts: 2,020
Quote:
Originally Posted by REWahoo View Post
Amazing how a simple explanation can clear up confusion...
Here's my interpretation. If you're a highly compensated then you're likely in management. As such, the IRS doesn't want you to make 401(k) decisions that benefit you at the expense of the wage slaves you're trying to oppress. So, you're capped at 2% above them, or 150% of what they contribute, whichever is less. than your employees contribute.

Unfortunately, a lot of non-executive types get caught in the highly compensated net as well. I'm just glad to be at a company now where there is no net.
__________________
Marquette is offline   Reply With Quote
Old 02-04-2008, 04:09 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,626
Last year our CEO had just filed his taxes when he got a distribution from the 401(k) for overpayment because the plan had failed the ADP test. He was so livid that he would have to go back to his tax guy for the very small distribution to get an amended return filed. But did this cause him to fix the 401(k) plan with more matching? Absolutely not.
__________________
LOL! is offline   Reply With Quote
Old 02-04-2008, 04:12 PM   #14
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,136
Marquette, I get it...just poking a little fun at the rather liberal use of acronyms in the Wiki explanation.
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 02-04-2008, 04:14 PM   #15
Thinks s/he gets paid by the post
simple girl's Avatar
 
Join Date: Sep 2006
Posts: 2,505
Quote:
Originally Posted by Marquette View Post
Here's my interpretation. If you're a highly compensated then you're likely in management. As such, the IRS doesn't want you to make 401(k) decisions that benefit you at the expense of the wage slaves you're trying to oppress. So, you're capped at 2% above them, or 150% of what they contribute, whichever is less. than your employees contribute.

Unfortunately, a lot of non-executive types get caught in the highly compensated net as well. I'm just glad to be at a company now where there is no net.
NOT in management! Yep, one of those non-executive employees who makes a nice salary but put in overtime (yes, he get's paid OT, so thankful for that!).

I'm wondering if I should delay doing our taxes this year...I have a feeling they will be sending some of our $$ back from our 401K just in time to make us have to do an amendment...grrrrr.....
__________________
simple girl
less stuff, more time

(49, married; DH 53. I am fully retired as of 2015 (well ok, I still work part-time but only because I love the job and have complete freedom to call off if I want to travel with hubby for work), DH hopes to fully retire 2018 when he turns 55 to access 401K penalty-free...although he may decide to do part-time consulting)
simple girl is offline   Reply With Quote
Old 02-04-2008, 04:18 PM   #16
Thinks s/he gets paid by the post
 
Join Date: Jan 2008
Posts: 2,020
Quote:
Originally Posted by REWahoo View Post
Marquette, I get it...just poking a little fun at the rather liberal use of acronyms in the Wiki explanation.
I figured that you got it; I'm not sure that I do, though.
__________________
Marquette is offline   Reply With Quote
Old 02-04-2008, 04:23 PM   #17
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,136
Quote:
Originally Posted by Marquette View Post
I figured that you got it; I'm not sure that I do, though.
Based on your translation above, I'd say you understand both the letter and the spirit of the law.
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 02-04-2008, 07:41 PM   #18
Thinks s/he gets paid by the post
Spanky's Avatar
 
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,046
Quote:
Originally Posted by simple girl View Post
DH just found out because he made over 100K last year (just a little over) he is now classified as "highly compensated" by the company...as such, we are now restricted from contributing more than 10% to his 401K.
This must be company specific. The company for which I work does not have such restriction. The amount is limited by what the law allows.
__________________
Spanky is offline   Reply With Quote
Old 02-04-2008, 07:43 PM   #19
Thinks s/he gets paid by the post
 
Join Date: Dec 2007
Posts: 4,764
I never heard of a limit. DW pulls in more than 100 a year and she can do the maximum.
__________________
Notmuchlonger is offline   Reply With Quote
Old 02-04-2008, 07:49 PM   #20
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,820
Virtually all working people the the US consider themselves "middle class". But some of us really do have higher incomes than others.
According the the Census Bureau, less than 10% of people who worked full time for "50 weeks or more" in 2006 made more than $100k.

So it's time for a pat on the back, he really is one of those "high earners".

PINC-05--Part 1
__________________

__________________
Independent is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
"Gut feel" versus "evidence-based" medicine Buckeye Health and Early Retirement 10 11-08-2007 11:21 AM
Wife surprised me, she is now a highly compensated employee bssc FIRE and Money 13 01-08-2007 04:26 PM
Anyone notice "Osama" sounds like "Obama" ? Mr._johngalt Other topics 50 10-29-2006 06:41 AM
401k and Highly Compensated Outtahere FIRE and Money 8 03-20-2006 05:21 PM
Book reports: "Blink" & "Tipping Point" Nords Other topics 2 12-04-2005 05:15 PM

 

 
All times are GMT -6. The time now is 08:03 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.