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

[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.

[boilerman]

Originally Posted by Andre1969

I'm a little bummed that the limit didn't go to $16K, but I think I'll survive. 2006 was the first year I hit the federal limit, which back then was $15K. I get paid every other week, and hit the limit in the 25th pay period, so for the 26th pay period I got a pretty nice check!

In 2007, I hit the $15.5K limit in the 24th pay period, so that paycheck was a little bigger than normal, but the 25th and 26th paychecks were sweet indeed.

I guess one nice benefit of the limit not being raised for 2008 is that I'll hit the $15.5K mark even earlier, since I make more money now and will (hopefully) get a raise on July 1. Plus, with some overtime thrown in, I figure this year around I might get 4 or 5 paychecks at the end of the year that are inflated, since no 401k contributions are taken out. That really helps around Christmas time.

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"?

[Notmuchlonger]

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.

[aaronc879]

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"?

There's a max of $15,500. It has to be spread out through out the entire year or you lose the company match after you hit the max and stop making contributions. I don't mind the 15,500 max though because I only make about $44K. If the max was higher I would still want to max it out but in doing so would have virtualy zero discretionary pending.

[figner]

Originally Posted by boilerman

Do most others max out at $15.5K and then open some sort of IRA? Or just stop contributing and enjoy the "raise"?

IRA (possibly non-deductible due to having an employer retirement plan), Roth IRA, or taxable accounts are all reasonable options once the 401K is maxed out. I contribute to 401K, Roth, and then taxable. Just because it's not called a retirement account doesn't mean it can't be for retirement...

[Andre1969]

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]

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.

[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]

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]

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.

[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!!

[BunsGettingFirm]

Originally Posted by RobertInOhio

I was always confused as to why there are limits on these accounts in the first place. Rich people are not going to use 401ks to save for their retirement and most people cannot afford to put in the max a year anyway, regardless of what it is.

I'll never use one since my company forces me to invest in "something". Why can't it be an high interest bearing account instead of gambling it away in the stock market?

That's exactly the point. Warren Buffet once quipped, "I have a lower tax rate than my $60k/year secretary does." The government doesn't want a bunch rich people paying only 15% capital gains tax, so they do everything to keep you an employee and paying the higher tax rates on labor.

[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]

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.

[svt2nv04]

i thought that was just for a roth ira?

[Niko]

Originally Posted by svt2nv04

i thought that was just for a roth ira?

If that's true (I really don't know) then rollover to a roth.

Most folks here also have other, non tax advantaged, accounts to draw on.