Adding money to 401K/403b late in the year.

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Newieinvestor
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Adding money to 401K/403b late in the year.

Post by Newieinvestor » Wed Oct 11, 2017 4:14 pm

I just started educating myself regarding retirement accounts, and it's already October of this year. I went on my company website to place more in my 403b, and it looks like the maximum it's allowing me to contribute is 70% of my salary in 2017. My husband has a 401k and he is limited to only 10% maximum. He makes about 4x as much as me. Just wanted to confirm that this is correct? We were hoping to contribute our entire salaries for the next 2.5 months to the retirement accounts (up to the 18k rule) and live off savings but it doesn't seem like it is possible. Next year we will do this right hopefully. :) Thanks!

ThriftyPhD
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Re: Adding money to 401K/403b late in the year.

Post by ThriftyPhD » Wed Oct 11, 2017 4:19 pm

Yes, each plan can have it's own limit.

Rupert
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Re: Adding money to 401K/403b late in the year.

Post by Rupert » Wed Oct 11, 2017 4:20 pm

Those 70% and 10% limits are what your employers have decided the limit is. Take a look at your plan documents. It should be in there. I've heard of employers waiving these limits in some cases, but I'm not sure that was legal. :confused

bloom2708
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Re: Adding money to 401K/403b late in the year.

Post by bloom2708 » Wed Oct 11, 2017 4:25 pm

I would double check the 10% limit. That is crazy low. Typically it is 50 to 75%. You have to have some pay left for things like health insurance and all the other costs that come out of your check.

For the balance of 2017, max what you can. Then set 2018 to get you to the full $18k pre-tax. Divide it by the number of times you are paid, factor in if you get a regular bonus. Then determine what percent you need to contribute of your pre-tax salary to hit that number. Say it is 18%.

If you hit the max with 1 or 2 paychecks left in the year, most companies stop contributing. Any match does not count toward your $18k.
Last edited by bloom2708 on Wed Oct 11, 2017 4:27 pm, edited 1 time in total.
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bloom2708
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Re: Adding money to 401K/403b late in the year.

Post by bloom2708 » Wed Oct 11, 2017 4:26 pm

ThriftyPhD wrote:
Wed Oct 11, 2017 4:19 pm
Yes, each plan can have it's own limit.
10% seems low. Only people making $180k+ can max their pre-tax 401k. Who would put such a limit in place? :annoyed
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

Newieinvestor
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Re: Adding money to 401K/403b late in the year.

Post by Newieinvestor » Wed Oct 11, 2017 4:32 pm

Thanks, that's a bummer! I guess there's no way to retroactively deduct income from the previous months then. Oh well!

Bloom, to clarify about that do most employers stop at exactly 18K or does it become complicated to put exactly that amount in since you might slightly over or undershoot?

bloom2708
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Re: Adding money to 401K/403b late in the year.

Post by bloom2708 » Wed Oct 11, 2017 4:35 pm

Newieinvestor wrote:
Wed Oct 11, 2017 4:32 pm
Thanks, that's a bummer! I guess there's no way to retroactively deduct income from the previous months then. Oh well!

Bloom, to clarify about that do most employers stop at exactly 18K or does it become complicated to put exactly that amount in since you might slightly over or undershoot?
I think they have to stop at the $18k. If you change jobs/employers during the year, that can certainly complicate things. I suppose some smaller employers have hand calculated systems or smaller systems that may not catch things. Probably edge cases.

Our company limits to 65% of your pre-tax salary. When I hit $18k, it no longer does the pre-tax deduction.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

gowest
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Re: Adding money to 401K/403b late in the year.

Post by gowest » Wed Oct 11, 2017 4:36 pm

Newieinvestor wrote:
Wed Oct 11, 2017 4:32 pm
Thanks, that's a bummer! I guess there's no way to retroactively deduct income from the previous months then. Oh well!

Bloom, to clarify about that do most employers stop at exactly 18K or does it become complicated to put exactly that amount in since you might slightly over or undershoot?
Most employers will have it automatically stop once you hit the maximum. Check with your specific employers to be sure that's what they do. (You can imagine the headaches if the company didn't do this for the employees!)

ThriftyPhD
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Re: Adding money to 401K/403b late in the year.

Post by ThriftyPhD » Wed Oct 11, 2017 4:43 pm

bloom2708 wrote:
Wed Oct 11, 2017 4:26 pm
ThriftyPhD wrote:
Wed Oct 11, 2017 4:19 pm
Yes, each plan can have it's own limit.
10% seems low. Only people making $180k+ can max their pre-tax 401k. Who would put such a limit in place? :annoyed
10% does seem low. Perhaps the husband is a Highly Compensated Employee (HCE) and therefore is being limited due to nondiscrimination testing.

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celia
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Re: Adding money to 401K/403b late in the year.

Post by celia » Wed Oct 11, 2017 5:37 pm

Please check again. I don't think the plans would say 10% and 70%. They probably say dollar amounts, but in your family's case, that works out to 10% and 70%. For example, if DH earns $180K per year and he can only contribute $18K, that turns out to be 10% FOR HIM, but not for other employees. The employee who makes $90K and can contribute $18K can put in 20%!

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Earl Lemongrab
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Re: Adding money to 401K/403b late in the year.

Post by Earl Lemongrab » Wed Oct 11, 2017 5:50 pm

Megacorp's plan limits contributions to 30% of salary. As it allows after-tax contributions, all it does is switch to AT when the limit is reached for deductible contributions.
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Spirit Rider
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Re: Adding money to 401K/403b late in the year.

Post by Spirit Rider » Wed Oct 11, 2017 6:44 pm

Plans can and many do set percentage contribution limits. I am inclined to think like ThiftyPHD, that a 10% limit is for an HCE set so the company can pass ADP testing.

The lowest I have typically seen as a company wide limit is 15%. This was the IRS limit before 2002 and an occasional incompetent company has never updated their plan

ved
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Re: Adding money to 401K/403b late in the year.

Post by ved » Wed Oct 11, 2017 8:06 pm

OP,

10% seems too low. Please check again - it might be for after-tax contributions

TropikThunder
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Re: Adding money to 401K/403b late in the year.

Post by TropikThunder » Wed Oct 11, 2017 8:09 pm

Earl Lemongrab wrote:
Wed Oct 11, 2017 5:50 pm
Megacorp's plan limits contributions to 30% of salary. As it allows after-tax contributions, all it does is switch to AT when the limit is reached for deductible contributions.
So anyone making less than $60,000 is prohibited from maxing out their 401k? [$18,000 annual limit is 30% of $60,000 annual salary]

I know plans get to establish some rules, and they have to allow for FICA taxes, health insurance, and other deductions from each paycheck so the limit will never be 100% but a policy that prevents some employees from voluntarily maxing out their 401k's seems blatantly discriminatory.

KSActuary
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Re: Adding money to 401K/403b late in the year.

Post by KSActuary » Wed Oct 11, 2017 8:18 pm

The 10% is not correct and most employers limit salary deferrals less than 100% due to other pre-tax or after-tax employee benefits. The most common number is 70% that I have seen.

Newieinvestor
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Re: Adding money to 401K/403b late in the year.

Post by Newieinvestor » Wed Oct 11, 2017 10:34 pm

Thanks for all of the feedback thus far! We confirmed that the limit is up to 10% for the 401k. It does kind of make sense though because everyone through this plan is a physician and I think the starting salaries are $180,000 so everyone can max out their 401k if they start early enough in the year.

We also found out that he has a 401a which he can put up to 75% into. I looked up the yearly max contribution for that and it's a whopping $54,000.

What's the general advice on 401k vs 401a? I'm guessing it's recommended to max out the 401k first and then contribute whatever you can to the 401a? Thank so much!!

mega317
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Re: Adding money to 401K/403b late in the year.

Post by mega317 » Thu Oct 12, 2017 12:12 am

I believe 401a is composed of
A. mandatory employee contributions (does not count towards 18k)
B. some forms of employer contributions (does not count towards 18k)
C. AFTER tax employee contributions (also does not count towards 18k, but is after tax).

I would put as much as you can towards the 401k first. 401a after tax contributions could be worthwhile if you can roll them into a Roth while still working. Research "mega backdoor Roth" on bogleheads. Your plan documents would call it an "in service distribution" or something similar.

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Earl Lemongrab
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Re: Adding money to 401K/403b late in the year.

Post by Earl Lemongrab » Thu Oct 12, 2017 10:05 am

TropikThunder wrote:
Wed Oct 11, 2017 8:09 pm
Earl Lemongrab wrote:
Wed Oct 11, 2017 5:50 pm
Megacorp's plan limits contributions to 30% of salary. As it allows after-tax contributions, all it does is switch to AT when the limit is reached for deductible contributions.
So anyone making less than $60,000 is prohibited from maxing out their 401k? [$18,000 annual limit is 30% of $60,000 annual salary]
Up until 2014 or so, it was 25%. For me it limits the amount I can contribute after-tax.
This week's fortune cookie: "The stock market may be your ticket to success." I sure hope so!

krow36
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Re: Adding money to 401K/403b late in the year.

Post by krow36 » Thu Oct 12, 2017 4:29 pm

Newieinvestor, between this thread and your other threads I think the following is the case:
His 401k, used. maxed?
His 401a, not used yet
His job: Physician, salary about 200k?

Her Univ of CA Retirement Plan, complex, not known what options you have chosen
Her UC 403b, not used yet
Her UC 457, not used yet
Her job: salary about 50k?

If you would use Laura’s format and supply as much of the requested information as possible, you will get much more informed answers to your questions. viewtopic.php?f=1&t=6212 Other posters frequently comment on how much they learned just by going through this process.

I would not put a top priority on doing a backdoor Roth at this time. You have until next April 15 to take care of that. You and DH have a cornucopia of options for making tax deductible salary contributions! I think it’s likely that DH can make after-tax salary deductions to his 401a and then move them into his Roth IRA as mentioned by mega317. You should look at his 401a plan document.

If you started a new thread titled something like: “Need help with UC Ret. Plan” and used Laura’s format to include his options and well as yours, I think you will get a lot of excellent advice from very informed posters. If you need help with the format, just ask. :happy

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