Anyone else bummed the 401K limit in 2008 didn't change?

[Andre1969]

Quote:

Originally Posted by boilerman So your company stops your contributions when you hit the IRS limit? Mine doesn't, it just converts your contributions to be post-tax instead of pre-tax. I contributed about $22K last year to my 401K, about 7K over the limit. The company continues to do its match even after I hit the pre-tax limit. Do most others max out at $15.5K and then open some sort of IRA? Or just stop contributing and enjoy the "raise"?

Yeah, my company simply stops my contributions when I hit the IRS limit. I don't know if I could get them to start doing post-tax or not. I do enough other investing on my own that I don't worry about it, though. I also have a Roth IRA that I try to max out every year, and also invest, post-tax, in mutual funds.

[boilerman]

Quote:

Originally Posted by Andre1969 Yeah, my company simply stops my contributions when I hit the IRS limit. I don't know if I could get them to start doing post-tax or not. I do enough other investing on my own that I don't worry about it, though. I also have a Roth IRA that I try to max out every year, and also invest, post-tax, in mutual funds.

I guess my company may be unusual in allowing post-tax contributions after you reach the IRS limit. I'm sure I would do better stopping with the max and investing the remainder elsewhere. But our combined income is almost $200K and I do have a pension so it seems that when I checked into the deductability of IRAs I never seem to qualify (has that changed?). And I just love the convenience of payroll deduction and having most of our funds in just a few places.

[jblack]

I had been hoping that the limit would go to $16k. DW and I are still in our early 30s and need every tax-deferred $ we can get.

[wilkens21]

I agree with Niko, there should be some "stable" fund, which is what I have in my company's plan. It's actually called the "Stable" fund for me.

Supposedly they invest only in cash reserves + the most stable of bonds, so that there won't be wild swings of your 401K money.

[sunshine]

I'm like millions of American workers...the 401K plan offered limits my contribution to 25% of gross...this is less than the 15,500 so raising the limit wouldn't help me.

The extra 5K catch-up for those over 50 also doesn't help any because the limit of 25% gross pay is still in effect keeping max contributions well below the Federal limits.

[dmpi]

I'm supprised the limit didn't go up. I thought it was suppose to be indexed to inflation. However, I did notice the SSI cap went up to 102K. Bummer.

[Notmuchlonger]

Quote:

Originally Posted by dmpi I'm supprised the limit didn't go up. I thought it was suppose to be indexed to inflation. However, I did notice the SSI cap went up to 102K. Bummer.

Yep, dont really get it either. Unless it is rounded up by 500 $ increments and it was just a bit under.

[meekie]

Very bummed. But it's going to motivate me more to get going on some taxable investments.
My company has a wacky match, but it's on a yearly basis, so I try to max out in early Dec. Makes it easy to budget for Xmas gifts.
My company will also let you put in up to 50% of your paycheck into the 401k, if it were 25% I probably couldn't hit it (except for the OT I put in last year).

[Ronstar]

I have to really investigate our company 401k. I get nailed by the "non-discrimination" clause since I'm more than a 5% owner, and the lower compensated workers put in little or no dollars in their 401k's. According to our 401k people, I can only invest about 10k.

[Outtahere]

Quote:

Originally Posted by Ronstar I have to really investigate our company 401k. I get nailed by the "non-discrimination" clause since I'm more than a 5% owner, and the lower compensated workers put in little or no dollars in their 401k's. According to our 401k people, I can only invest about 10k.

I get hit with that too, the catch up clause helped once I hit 50 but I still can't put in max.

[Sarah in SC]

Ronstar, look at what is called a "safe harbor" plan. It would likely be worth your trouble to consult with an actuary about your specific situation and also to see if a defined benefit plan would be better for you.

The safe harbor 401k profit sharing plans will allow great contributions because of the compulsory safe harbor company match to eligible employees.

We stretch our contributions over the entire year, as the match is per pay period, so there is no reason to max out early. DHs plan would allow it, but our cash flow would suffer mightily, and make it harder to fund the Roths and the taxable savings early.

[Ronstar]

Quote:

Originally Posted by Sarah in SC Ronstar, look at what is called a "safe harbor" plan.

We have looked at one. I didn't look at the plan, but I was told that the company owners would not benefit to the extent of the cost of implementing it. There really isn't much of a push to get one since the owners that did review the safe harbor option are under 50 and don't max out anyway.

I found that a "catch-up" contribution can be made after hitting the test limit. So i questioned our 401k consultant and she said that's true, but we are instead using the unused 5k catch-up contributions as a credit against our test limit. i still think I'm getting shafted here somehow.

[Outtahere]

That's right Ronstar, it's very expensive to have a safe harbor plan, we checked it out and decided against it.

[NinjaPigeon]

Quote:

Originally Posted by Outtahere That's right Ronstar, it's very expensive to have a safe harbor plan, we checked it out and decided against it.

Sorry for being late to the party, but are you saying it's more expensive due to the way the match works versus a normal 401k?

We do safe harbor to get around the 401k qualification tests, but our cost for the plan is basically the same. Plus, due to the nature of our employees, they'd still capture the match if it was a normal plan. Of course, we are a small company, so it's easy math for us I'd imagine a company of a hundred plus people might make that more challenging.

[Ronstar]

Quote:

Originally Posted by NinjaPigeon Sorry for being late to the party, but are you saying it's more expensive due to the way the match works versus a normal 401k? We do safe harbor to get around the 401k qualification tests, but our cost for the plan is basically the same. Plus, due to the nature of our employees, they'd still capture the match if it was a normal plan. Of course, we are a small company, so it's easy math for us I'd imagine a company of a hundred plus people might make that more challenging.

Yes, I remember the safe harbor could include an increased match at the lower pct contributions, and also a change in vesting terms. The safe harbor requires better plan terms for lower paid employees in exchange for giving the highly compensated freedom from discrimination testing, and therefor allowing the highly compensated to max out their contributions. In our case, the owners' costs of giving most employees an increased match was more than the benefit the owners would receive from maxing out.

[NinjaPigeon]

Quote:

Originally Posted by Ronstar Yes, I remember the safe harbor could include an increased match at the lower pct contributions, and also a change in vesting terms. The safe harbor requires better plan terms for lower paid employees in exchange for giving the highly compensated freedom from discrimination testing, and therefor allowing the highly compensated to max out their contributions. In our case, the owners' costs of giving most employees an increased match was more than the benefit the owners would receive from maxing out.

How much match were you giving? The terms of Safe Harbor are 3% non-elective (matching even if they contribute nothing) or 4% elective (only match what they contribute, up to 4%).

Almost everywhere I've worked has had a 401k match as generous or moreso than this.

In our case, we have it because of me I'm not HCE, but am most likely to hit it of all the employees since I was hired first. I knew it would be in my best interests to keep those pesky compliance rules on the sideline if possible.

[Ronstar]

Quote:

Originally Posted by NinjaPigeon How much match were you giving? The terms of Safe Harbor are 3% non-elective (matching even if they contribute nothing) or 4% elective (only match what they contribute, up to 4%). Almost everywhere I've worked has had a 401k match as generous or moreso than this. In our case, we have it because of me I'm not HCE, but am most likely to hit it of all the employees since I was hired first. I knew it would be in my best interests to keep those pesky compliance rules on the sideline if possible.

we give 50 cent match per dollar up to 10%. But very few employees are in the 401k or invest at the pct levels that the owners do. we were told that going to a safe harbor would cost us around 25k per year. I personally would benefit even after this cost, but other owners would not. I think I need to put together a stronger argument because I cant make a catch-up contribution even though I'm over 50.

[StJohnsWood]

I don't get it. They want us to save more and save for retirement but then cap the 401K. They'll get their money.

I would like to see it unlimited. You can put as much as you want in the 401K. As long as it comes from your job let us max that baby out!!

[svt2nv04]

uhhh being that this is an early retirement forum, is there a specific reason that i don't know about that you guys would want to put in as much as possible in a 401k? i am trying to retire by 50 but i only contribute 12.5% to my 401k so that i'll have enough to contribute to a roth ira and a taxable account. a 401k and roth ira you have to be a certain age to withdraw without penalty correct? so why other than tax benefits would you want to max out a 401k?

i mean, unless you guys are maxing it out PLUS contributing (maxing) roth ira and a taxable account.

[Niko]

Quote:

Originally Posted by svt2nv04 uhhh being that this is an early retirement forum, is there a specific reason that i don't know about that you guys would want to put in as much as possible in a 401k? i am trying to retire by 50 but i only contribute 12.5% to my 401k so that i'll have enough to contribute to a roth ira and a taxable account. a 401k and roth ira you have to be a certain age to withdraw without penalty correct? so why other than tax benefits would you want to max out a 401k? i mean, unless you guys are maxing it out PLUS contributing (maxing) roth ira and a taxable account.

72t.