Employer limits 401k contributions - now what?

nonroom · Post by **nonroom** » Mon Jul 07, 2008 5:31 am

From reading this forum, the order for contributions is:
Fund 401(k) up to full employer match
Fund Roth IRA if eligible
Max out 401(k)
Go taxable

My new employer limits my 401(k) to no higer than 15% of my gross income. At my current salary @ 15%, I will not max out 401(k). If I want to invest more, should I go taxable? If I need to post my complete portfolio, I will

YDNAL · Post by **YDNAL** » Mon Jul 07, 2008 6:13 am

My new employer limits my 401(k) to no higer than 15% of my gross income. At my current salary @ 15%, I will not max out 401(k).

nonroom,

An example of morons running retirement programs. If the Government allows you to contribute $15.5K annually, why should ANYONE else prevent you from doing so?

Don't tell the plan administrators exactly in those words I used,

but lobby to amend this particular selection they made when the plan was set up..... I've done it!

Regards,
Landy

gassert · Post by **gassert** » Mon Jul 07, 2008 9:01 am

Landy,

It likely doesn't have anything to do with "morons". It sounds like there's top-heavy testing which is an IRS issue, not an employer issue.

Non,

Use the same order, you just have a lower effective cap in your 401k.

MariaT · Post by **MariaT** » Mon Jul 07, 2008 11:49 am

I believe it is indeed an IRS issue and not the employer. For two years in a row my husband maxed out his 401k contributions and for the past two years his company had to send him excess contributions because of top heavy testing limitation - reason not enough employees are participating in the plan. He is once again contributing the max this year but I'm not holding my breath.

On the other hand if your company is limiting one to only contribute 15% max, you might want to lobby your HR to increase the limits so one can contribute the maximum allowed. My company allows us to contribute 50% of our compensation to the plan and not in excess of the current year max limitation.

Warm regards,
Maria

YDNAL · Post by **YDNAL** » Mon Jul 07, 2008 12:33 pm

The 15% is imposed by plan administrators and can be changed to allow those that are not high earners to contribute the maximum. Top-heavy testing will impact a plan whether you contribute 15% or the maximum allowed by law at $15.5K.

Regards,
Landy

leonard · Post by **leonard** » Mon Jul 07, 2008 8:07 pm

gassert wrote:It likely doesn't have anything to do with "morons". It sounds like there's top-heavy testing which is an IRS issue, not an employer issue.

I disagree, they are likely still "morons". If they are a "top heavy" 401k, that would mean they aren't a safe harbor 401k. If they are not a safe harbor 401k, that means the execs are very likely not taking full advantage of acceptable deferrals under current law. Also, they incur the extra complexity, time, and expense to do the testing. Much easier and better for everyone all around - staff and execs - to make the 401k safe harbor, to facilitate even greater contributions by execs and staff.

Plus arbitrarily limiting someone to anything less than the $15.5k limit is also moronic from a staff retention standpoint. It is essentially a "free" benefit the company could give at no/little cost that they are arbitrarily denying an employee.

Bad business all the way around.