Reaching 401k Max

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utefan22
Posts: 13
Joined: Fri May 12, 2017 10:22 pm

Reaching 401k Max

Post by utefan22 » Wed Sep 13, 2017 3:20 pm

Asking for a friend... :happy ...one you hit the IRS 401k limit of $18k contribution, do most of the major brokers (Fidelity, etc.) stop you from contributing more or do you have to actively manage the contributions to avoid any penalties?

I've always erred on the side of safety in going just under $18K....but I've always wondered about this. Thanks!

TigerNest
Posts: 254
Joined: Mon May 10, 2010 12:58 pm

Re: Reaching 401k Max

Post by TigerNest » Wed Sep 13, 2017 3:25 pm

It stops automatically at $18,000. At least it has at my last few employers. I'm not sure if my employer or the 401(k) provider is the one that keeps track of it.

ThriftyPhD
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Joined: Mon Jul 31, 2017 10:43 am

Re: Reaching 401k Max

Post by ThriftyPhD » Wed Sep 13, 2017 3:26 pm

Some have spill over, where anything past $18k will go in as after tax. Others let you choose 'max' and will hit the $18k exactly.

If you have multiple 401ks in the same year, you'll need to make sure you don't go over the $18k combined over all of them since they won't know what you've contributed to outside plans.

mega317
Posts: 694
Joined: Tue Apr 19, 2016 10:55 am

Re: Reaching 401k Max

Post by mega317 » Wed Sep 13, 2017 3:27 pm

utefan22 wrote:
Wed Sep 13, 2017 3:20 pm
Asking for a friend... :happy ...one you hit the IRS 401k limit of $18k contribution, do most of the major brokers (Fidelity, etc.) stop you from contributing more or do you have to actively manage the contributions to avoid any penalties?

I've always erred on the side of safety in going just under $18K....but I've always wondered about this. Thanks!
Fidelity doesn't care. Your employer might automatically stop at 18k, or they may not. I'd ask them, and if they don't then I'd do the math so that I reached exactly $18,000.00. Fortunately 18k is easily divided by 12 ($1,500 per month), 26 ($692.30 per paycheck) or any other number.

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DaftInvestor
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Re: Reaching 401k Max

Post by DaftInvestor » Wed Sep 13, 2017 3:28 pm

Every employer I ever worked for stopped at the max but I have always asked to make sure.

DoTheMath
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Location: The Plains

Re: Reaching 401k Max

Post by DoTheMath » Wed Sep 13, 2017 3:36 pm

Enragingly, they recently changed it for us and now you indicate your desired withholding as a percentage of your salary. This makes the math more annoying -- especially if your salary varies due to raises, supplemental pay, leaves of absences, etc. Of course, was done in the name of being more convenient for the employees....
“I am losing precious days. I am degenerating into a machine for making money. I am learning nothing in this trivial world of men. I must break away and get out into the mountains...” -- John Muir

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Duckie
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Re: Reaching 401k Max

Post by Duckie » Wed Sep 13, 2017 4:59 pm

utefan22 wrote:once you hit the IRS 401k limit of $18k contribution, do most of the major brokers (Fidelity, etc.) stop you from contributing more or do you have to actively manage the contributions to avoid any penalties?
It depends on the employer (not the brokerage). Some stop when you hit the limit. Some don't stop and funnel the excess to an after-tax sub-account. And some don't stop and you have to withdraw the excess as soon as you catch it (which may not be until the next year). This is a PITA. Check with your employer.

bantam222
Posts: 52
Joined: Sun Nov 23, 2014 5:57 pm

Re: Reaching 401k Max

Post by bantam222 » Wed Sep 13, 2017 5:03 pm

mega317 wrote:
Wed Sep 13, 2017 3:27 pm
utefan22 wrote:
Wed Sep 13, 2017 3:20 pm
Asking for a friend... :happy ...one you hit the IRS 401k limit of $18k contribution, do most of the major brokers (Fidelity, etc.) stop you from contributing more or do you have to actively manage the contributions to avoid any penalties?

I've always erred on the side of safety in going just under $18K....but I've always wondered about this. Thanks!
Fidelity doesn't care. Your employer might automatically stop at 18k, or they may not. I'd ask them, and if they don't then I'd do the math so that I reached exactly $18,000.00. Fortunately 18k is easily divided by 12 ($1,500 per month), 26 ($692.30 per paycheck) or any other number.
My employer only allows you to put a "percentage of your salary". Very hard to hit exactly, especially as your salary will fluctuate throughout the year with raises and bonuses.

Luckily they stop the contributions at $18,000 limit so it does not matter too much.

utefan22
Posts: 13
Joined: Fri May 12, 2017 10:22 pm

Re: Reaching 401k Max

Post by utefan22 » Wed Sep 13, 2017 5:38 pm

mega317 wrote:
Wed Sep 13, 2017 3:27 pm
utefan22 wrote:
Wed Sep 13, 2017 3:20 pm
Asking for a friend... :happy ...one you hit the IRS 401k limit of $18k contribution, do most of the major brokers (Fidelity, etc.) stop you from contributing more or do you have to actively manage the contributions to avoid any penalties?

I've always erred on the side of safety in going just under $18K....but I've always wondered about this. Thanks!
Fidelity doesn't care. Your employer might automatically stop at 18k, or they may not. I'd ask them, and if they don't then I'd do the math so that I reached exactly $18,000.00. Fortunately 18k is easily divided by 12 ($1,500 per month), 26 ($692.30 per paycheck) or any other number.
Agree but the issue is when bonus and other additional compensation comes in that fluctuates (in my case anyway). I wish it were as easy to just do the division, but considering the above and my employer only allows us to "eyeball" it with a percentage of my paycheck.

utefan22
Posts: 13
Joined: Fri May 12, 2017 10:22 pm

Re: Reaching 401k Max

Post by utefan22 » Wed Sep 13, 2017 6:22 pm

Called Fidelity and found out my employer does indeed stop it once it hits $18K.

He then told me I STILL can contribute to the plan on an after-tax basis - but I am assuming I should look to do a ROTH IRA at that point or at least a backdoor ROTH IRA to avoid getting taxed twice.

beehappy
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Joined: Wed Sep 13, 2017 3:52 pm

Re: Reaching 401k Max

Post by beehappy » Wed Sep 13, 2017 7:36 pm

utefan22 wrote:
Wed Sep 13, 2017 6:22 pm
Called Fidelity and found out my employer does indeed stop it once it hits $18K.

He then told me I STILL can contribute to the plan on an after-tax basis - but I am assuming I should look to do a ROTH IRA at that point or at least a backdoor ROTH IRA to avoid getting taxed twice.
If your plan allows in-service withdrawals, you could contribute on an after-tax basis, then immediately withdraw that contribution to a Roth IRA. You'd only do this if you wanted to contribute more than the annual limit ($5.5k) to a Roth. Search for Mega backdoor Roth IRA for specifics.

slowbutsteady
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Joined: Fri Feb 27, 2015 9:42 am

Re: Reaching 401k Max

Post by slowbutsteady » Wed Sep 13, 2017 7:49 pm

Duckie wrote:
Wed Sep 13, 2017 4:59 pm
utefan22 wrote:once you hit the IRS 401k limit of $18k contribution, do most of the major brokers (Fidelity, etc.) stop you from contributing more or do you have to actively manage the contributions to avoid any penalties?
It depends on the employer (not the brokerage). Some stop when you hit the limit. Some don't stop and funnel the excess to an after-tax sub-account. And some don't stop and you have to withdraw the excess as soon as you catch it (which may not be until the next year). This is a PITA. Check with your employer.
My experience as well. My last employer's plan will cap at the 18k and dump the excess into an after tax sub-account. Current employer automatically stops at 18k when I hit the limit. Btw, I try to hit the 18k in December so I don't miss out on the pay-as-you-go match.

Have your friend check with his/her plan administrator in order to plan appropriately.
The tortoise wins every time I read that story.

mega317
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Joined: Tue Apr 19, 2016 10:55 am

Re: Reaching 401k Max

Post by mega317 » Wed Sep 13, 2017 10:46 pm

utefan22 wrote:
Wed Sep 13, 2017 6:22 pm
Called Fidelity and found out my employer does indeed stop it once it hits $18K.

He then told me I STILL can contribute to the plan on an after-tax basis - but I am assuming I should look to do a ROTH IRA at that point or at least a backdoor ROTH IRA to avoid getting taxed twice.
You won't be taxed twice. You pay tax on contributions before the money goes in. Then you only pay taxes on the earnings when withdrawn. And I second the recommendation to read about mega backdoor Roth. And yes, do a Roth either directly or by the backdoor before contributing to your after-tax 401k.

mega317
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Joined: Tue Apr 19, 2016 10:55 am

Re: Reaching 401k Max

Post by mega317 » Wed Sep 13, 2017 10:52 pm

For those that are only allowed to contribute a percentage, and whose employers don't automatically stop at 18k, I feel for you. I guess you have to decide if you'd rather undershoot and not quite hit 18k, or overshoot and deal with withdrawing the excess. I would probably do the former since my HR is impossible to work with.

Per the IRS
If an employee's total deferrals are more than the limit for that year, the employee should notify the plan and ask that the difference (called an excess deferral) be paid out
No thanks.

ERISA Stone
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Joined: Tue Jun 24, 2014 8:54 am

Re: Reaching 401k Max

Post by ERISA Stone » Wed Sep 13, 2017 11:13 pm

mega317 wrote:
Wed Sep 13, 2017 10:52 pm
For those that are only allowed to contribute a percentage, and whose employers don't automatically stop at 18k, I feel for you. I guess you have to decide if you'd rather undershoot and not quite hit 18k, or overshoot and deal with withdrawing the excess. I would probably do the former since my HR is impossible to work with.

Per the IRS
If an employee's total deferrals are more than the limit for that year, the employee should notify the plan and ask that the difference (called an excess deferral) be paid out
No thanks.
If the plan is properly administered, it shouldn't be a big deal even if a participant exceeds the limit. The 3rd party administrator should be reviewing the 402(g) limit (the $18k) on an annual basis, and should instruct the employer to process refunds (plus earnings) by the 4/15 deadline if the limit is exceeded. Slight problem could come if payroll records are incomplete/late, but if that's the case, there are likely bigger issues.

For the participant personally, the headache comes if he/she is part of multiple plans. THEN, it becomes very important for the employee to monitor the limit closely. Having said that, it shouldn't be much more difficult than reviewing W-2's.

mega317
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Joined: Tue Apr 19, 2016 10:55 am

Re: Reaching 401k Max

Post by mega317 » Thu Sep 14, 2017 12:48 am

3rd party administrator--is that the brokerage? I have more confidence that one could work with Fidelity. Maybe I'll contribute $18,010 to see what happens. I will report back. Although I suspect I will be cut off at 18k, even though my inquiry has been ignored.

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