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

[svt2nv04]

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Originally Posted by Niko 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.

yeah that's true about the rollover. are there any disadvantages to doing so? I'm surprised the IRS hasn't made it a rule that we're not allowed to do that. I guess you get taxed when you roll it over. There isn't a penalty is there?

[Niko]

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Originally Posted by svt2nv04 yeah that's true about the rollover. are there any disadvantages to doing so? I'm surprised the IRS hasn't made it a rule that we're not allowed to do that. I guess you get taxed when you roll it over. There isn't a penalty is there?

I've never done a roll over so you might wait for a more informed response. But the main disadvantage, as I understand it, is the need to pay a potentially big tax bill when you roll over. As such, it makes sense to plan your roll over a couple of years in advance to ensure you can pay the taxes.

[growing_older]

Or spread it out over several years. Rollover just enough each year to stay in lower brackets.

[Niko]

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Originally Posted by growing_older Or spread it out over several years. Rollover just enough each year to stay in lower brackets.

Good point.

[Gsquared]

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Originally Posted by boilerman 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.

I don't think it is unusual for a company to allow after-tax contributions. In my company you can choose the percentage that you want to go to pre-tax and to after-tax, so theoretically you could put in only after-tax (although I don't know why you would want to do that). In addition to the IRS pre-tax limit, there is an overall limit on the combined contribution. I have typically maxed out the pre-tax, and put as much into after-tax as possible. Earnings on the after-tax grow tax free just as with a non-deductible IRA.

I think it is unusual for your company to match after-tax. This in and of itself is a reason for you to use the 401K for these savings - take the free money!

Fellow Boilermaker,
Gsquared

[NinjaPigeon]

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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.

[Sarah in SC]

Ninja, I don't know about the costs relative to other kinds of 401ks, but the Safe harbor is practically the only way that the HCEs and executives of a company can put the full amount in the plan and not run afoul of one or more of the tests.

We have a safe harbor plan that we run for just a handful of clients, but the admin is done by a TPA firm.

[Ronstar]

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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]

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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.

[armor99]

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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?

First off "rich people" did not get rich by being foolish. If you can put money into a tax deferred account, you most certainly will. Plus the fact that if you invest correctly, there is no reason that future generations of thir family ever need to be poor again.

Be careful about how you think about the stock market.... you need to think of investing in the long term say 20-30 years. Investing in the stock market in the short term (a year or less) certainly IS gambling. But continually putting money in and deversifying is not. I have seen members of my own family take the same line of reasoning that you have. And in their case, they have litterally "conservatived" themselves right into the poorhouse for retirement. If all you do is put money in the bank or bonds, then you will never be able to achieve a desireable retirement. It just is not going to happen, the interest you earn is just too small and inflation is always eating away at what you are trying to save.
You can beleive what I am telling you or not as you prefer, but if you look at the return on investments for any 30 year period, nothing has beaten the stock market.. During shorter runs 5,10,15 years... real estate, or gold, or other investments might have done better. But for the 30 year model.... the market is still king...

[Ronstar]

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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.

[NinjaPigeon]

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Originally Posted by Ronstar 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.

Intriguing. I wonder how they come up with the 25k figure.

[nun]

I'm not bummed that the limit didn't change, just put money in a ROTH or an IRA. There's always after tax saving or if you are desperate you could open an after tax annuity.

In my case I have access to a state 401k type plane, a 403b and a 457 which I think is a bit ridiculous when some people don't even have 401k plans.

[Texas Proud]

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Originally Posted by Ronstar 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.

Hmmm... I was just talking to our plan administrator and asked him about being top heavy.... he said the catch up does not come into the calculation and is something that should be done first for the owners...

Don't know why you can't...

[Ronstar]

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Originally Posted by NinjaPigeon Intriguing. I wonder how they come up with the 25k figure.

I believe it was mainly funding the matches of those that previously didnt contribute, but I didnt get the exact details.

[Ronstar]

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Originally Posted by Texas Proud Hmmm... I was just talking to our plan administrator and asked him about being top heavy.... he said the catch up does not come into the calculation and is something that should be done first for the owners... Don't know why you can't...

I thought that also. We have a third party administrator that I called, and she said that I may be able to use the catch-up, but it was being used temporarily as a credit for use in passing the test. She would know more by year's end. I really have to get into this further, because I need to max out since I have only 2-3 years left.