401k % contributions........
-
- Posts: 116
- Joined: Fri Aug 13, 2010 7:08 pm
401k % contributions........
Since it seems like a lot of people here believe "lump sum" is better than DCAing, wouldnt it make sense then to put your 401k contribution as a percentage of pay as high as you can possibly stand it?
i.e., 20% so it all goes in sooner in the year, rather than 10% all year around?
This is assuming you're going to max it out each year. Wouldn't that be better, since more of your money spends a longer time in the market?
i.e., 20% so it all goes in sooner in the year, rather than 10% all year around?
This is assuming you're going to max it out each year. Wouldn't that be better, since more of your money spends a longer time in the market?
- interplanetjanet
- Posts: 2226
- Joined: Mon Jan 24, 2011 3:52 pm
- Location: the wilds of central California
I do this - the highest my employer allows my contribution to go is 50%. I normally get a bonus in February and would prefer to be able to just have them put it all towards my 401k contribution, but since they won't separate it out I just keep the contributions flowing until I hit my cap.
My employer does do a match "true up" periodically during the year to ensure that no matching funds are lost, but not all do. That's the term I'd use when getting confirmation from your employer or their 401k plan (preferably in writing).
-Janet
My employer does do a match "true up" periodically during the year to ensure that no matching funds are lost, but not all do. That's the term I'd use when getting confirmation from your employer or their 401k plan (preferably in writing).
-Janet
-
- Posts: 116
- Joined: Fri Aug 13, 2010 7:08 pm
I'm going to check that out. That's a good point I didn't think of. I can do up to 60% if I want I believe.interplanetjanet wrote:I do this - the highest my employer allows my contribution to go is 50%. I normally get a bonus in February and would prefer to be able to just have them put it all towards my 401k contribution, but since they won't separate it out I just keep the contributions flowing until I hit my cap.
My employer does do a match "true up" periodically during the year to ensure that no matching funds are lost, but not all do. That's the term I'd use when getting confirmation from your employer or their 401k plan (preferably in writing).
-Janet
-
- Posts: 59
- Joined: Tue Jul 28, 2009 12:22 pm
Maybe a dumb question...
...but does your employer match count towards the $16,500?
I.E. I contribute 16,500, and still have my employer match the 6%. (I'm thinking yes).
I'm trying to find a way to get even closer to the match, with out living too frugal.
Thanks,
Jason
I.E. I contribute 16,500, and still have my employer match the 6%. (I'm thinking yes).
I'm trying to find a way to get even closer to the match, with out living too frugal.
Thanks,
Jason
- interplanetjanet
- Posts: 2226
- Joined: Mon Jan 24, 2011 3:52 pm
- Location: the wilds of central California
Re: Maybe a dumb question...
The $16.5k limit is for your pretax contributions only. The total of your contributions and the contributions from your employer cannot exceed $49k or your gross salary for the year.wldlndfirefghtr wrote:...but does your employer match count towards the $16,500?
I.E. I contribute 16,500, and still have my employer match the 6%. (I'm thinking yes).
Edit: If you're 50 or over, you can make an additional $5500 catch-up contribution per year.
-Janet
-
- Posts: 59
- Joined: Tue Jul 28, 2009 12:22 pm
-
- Posts: 116
- Joined: Fri Aug 13, 2010 7:08 pm
Not obvious at all... Anyone that falls over the HCE line is limited in a lot of plans - a lot will not be able to get close to even the 16K limit.wldlndfirefghtr wrote:How does one get up to 49K into a 401k (granted besides the obvious high salary income)
Would need a great employer.....
|
Rob |
Its a dangerous business going out your front door. - J.R.R.Tolkien
If you are self-employed, then you "the employee" contributes $16,500 and you "the employer" contributes the rest. You "the company" needs to be very profitable to be able to do this.wldlndfirefghtr wrote:How does one get up to 49K into a 401k (granted besides the obvious high salary income)
Got the 16,500 pretax.
Thanks
-
- Posts: 116
- Joined: Fri Aug 13, 2010 7:08 pm
Ahhhhhhhh.livesoft wrote:If you are self-employed, then you "the employee" contributes $16,500 and you "the employer" contributes the rest. You "the company" needs to be very profitable to be able to do this.wldlndfirefghtr wrote:How does one get up to 49K into a 401k (granted besides the obvious high salary income)
Got the 16,500 pretax.
Thanks
-
- Posts: 3971
- Joined: Tue Sep 22, 2009 7:56 pm
Defined contribution Pension
My wife's company moved to a defined benifit pension about 2 years ago. The amount they were putting in to the defined benefit was switched into her 401K as the defined contribution. My company is going to that format in 2012.wldlndfirefghtr wrote:How does one get up to 49K into a 401k (granted besides the obvious high salary income)
Got the 16,500 pretax.
Thanks
Re: 401k % contributions........
It makes sense if your cash flow situation allows it. Receiving $0 paychecks would make most people uncomfortable, but if you can reduce your take-home pay to just enough to not have to tap into your emergency funds, that's a good move.EmptyWallet wrote:Since it seems like a lot of people here believe "lump sum" is better than DCAing, wouldnt it make sense then to put your 401k contribution as a percentage of pay as high as you can possibly stand it?
I'm not sure how common it is, but my company does an audit at the start of each year and reimburses you if you "missed" matching contributions because of this. They pretend the contributions were spread evenly throughout the year (even if you weren't employed the entire year) and calculate how much matching contribution you should have received; if you received less they deposit the difference into the 401k.Harold wrote:(Main thing to watch out for is that you don't lose out on employer match later on in the year by doing so.)
You can also make after-tax contributions to your 401k. Typically you can designate three different types of contributions: Pre-Tax (Deductible), Roth, and After-Tax. There are also Matching contributions, but you don't directly control those.wldlndfirefghtr wrote:How does one get up to 49K into a 401k (granted besides the obvious high salary income)
Pre-Tax + Roth contributions may not exceed $16,500
Pre-Tax + Roth + Matching + After-Tax contributions may not exceed $49,000
So if you make $16,500 in Pre-Tax contributions and your employer makes $8500 in Matching contributions, that's $25,000 -- you can make $24,000 in additional After-Tax contributions.
If your plan allows in-service rollovers of after-tax funds, you can roll those funds to an IRA (my plan allows one such rollover every year), immediately convert to Roth, and pay not tax except on the gains.
My strategy is to get my Pre-Tax contributions done in the first half of the year, then switch to After-Tax contributions for the second half of the year, roll the After-Tax contributions to Vanguard each January and immediately to convert to Roth along with my yearly IRA contribution.
To get to the 49k max. your employer would need to provide a healthy match. However, years ago my employer eliminated their defined pension plan and instead makes an annual fixed contribution in addition to the match. This is based on a fixed % of wages. Not that I'm at that level, but I can see how the max 49k could be reached.
-
- Posts: 3971
- Joined: Tue Sep 22, 2009 7:56 pm
It can't with % - based approach, because of "highly compensated employee" rule.foxfirev5 wrote:To get to the 49k max. your employer would need to provide a healthy match. However, years ago my employer eliminated their defined pension plan and instead makes an annual fixed contribution in addition to the match. This is based on a fixed % of wages. Not that I'm at that level, but I can see how the max 49k could be reached.
http://en.wikipedia.org/wiki/401(k)#Hig ... _.28HCE.29
-
- Posts: 7502
- Joined: Mon Dec 17, 2007 6:32 pm
Not necessarily. The 16.5k is only the limit for "employee elective deferrals", i.e. pre-tax. The employee can also make after-tax (non-Roth) contributions. Naturally, the plan would need to support that.foxfirev5 wrote:To get to the 49k max. your employer would need to provide a healthy match.
Brian
-
- Posts: 116
- Joined: Fri Aug 13, 2010 7:08 pm
But in case you switch jobs, and had already contributed the max. with the former company, one would lose the match from the new company for that year.Harold wrote:Yes.
Many of us do precisely that. (Main thing to watch out for is that you don't lose out on employer match later on in the year by doing so.)
-
- Posts: 7502
- Joined: Mon Dec 17, 2007 6:32 pm
Maybe not. The new company might allow after-tax contributions and match those. In general though, it's a reasonable concern.ilisira wrote:But in case you switch jobs, and had already contributed the max. with the former company, one would lose the match from the new company for that year.Harold wrote:Yes.
Many of us do precisely that. (Main thing to watch out for is that you don't lose out on employer match later on in the year by doing so.)
Brian