401k loan to get new employer's company match

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chemeng
Posts: 74
Joined: Wed Jan 16, 2013 6:14 pm

401k loan to get new employer's company match

Post by chemeng » Wed May 16, 2018 1:27 pm

I just started at a new company. In my previous company, I've already contributed $16000 to their 401k. My new employer offers $8500 company match dollar for dollar per year (given per pay period). Where it stands, I will only be able to receive $2500 in company match ($18500 - $16000 = $2500).

New company does not have any "after-tax" account that excess contributions past $18500 will go into, so that's not an option.

However, is it possible to take out a 401k loan for $6000 ($8500 - $2500 = $6000) in order to be able to contribute the full $8500 match? It would be as follows:

1. Rollover 401k from old company to new company
2. Take 401k loan for $6000. This would bring my effective contribution YTD to $10000 (does it work like this?)
3. Contribute $8500 up to the end of this yr and receive full company match (while paying back loan per all standard rules)

Thanks.

niceguy7376
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Location: Metro ATL

Re: 401k loan to get new employer's company match

Post by niceguy7376 » Wed May 16, 2018 1:37 pm

401k loan does NOT reduce the already contributed limits of this year.

soccerrules
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Re: 401k loan to get new employer's company match

Post by soccerrules » Wed May 16, 2018 1:37 pm

I am no expert, but I do not think you can do that.
You would be exceeding the yearly maximum for contributions.
The limit is the limit on contributions whether you take a loan or not.
Don't let your outflow exceed your income or your upkeep will be your downfall.

OnLevel
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Re: 401k loan to get new employer's company match

Post by OnLevel » Wed May 16, 2018 1:42 pm

New company doesn't know about the 16000 you already contributed, so you could just do non-taxable contributions and still get the match.

chemeng
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Re: 401k loan to get new employer's company match

Post by chemeng » Wed May 16, 2018 2:07 pm

How does one elect non-taxable contributions (did not see this option in the plan administrator's website)?

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neurosphere
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Re: 401k loan to get new employer's company match

Post by neurosphere » Wed May 16, 2018 3:16 pm

OnLevel wrote:
Wed May 16, 2018 1:42 pm
New company doesn't know about the 16000 you already contributed, so you could just do non-taxable contributions and still get the match.
chemeng wrote:
Wed May 16, 2018 2:07 pm
How does one elect non-taxable contributions (did not see this option in the plan administrator's website)?
I assume the advice was supposed to be to make non-Roth "after-tax" contributions. These contributions, if the employer allows them, can be in addition to the $18,500 limit. However I do not know if employers are allowed to match contributions to after-tax portions of the 401k. I know for sure that others on Boglehead DO know the answer. But not me. :D
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

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Earl Lemongrab
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Re: 401k loan to get new employer's company match

Post by Earl Lemongrab » Thu May 17, 2018 12:58 pm

neurosphere wrote:
Wed May 16, 2018 3:16 pm
OnLevel wrote:
Wed May 16, 2018 1:42 pm
New company doesn't know about the 16000 you already contributed, so you could just do non-taxable contributions and still get the match.
chemeng wrote:
Wed May 16, 2018 2:07 pm
How does one elect non-taxable contributions (did not see this option in the plan administrator's website)?
I assume the advice was supposed to be to make non-Roth "after-tax" contributions. These contributions, if the employer allows them, can be in addition to the $18,500 limit. However I do not know if employers are allowed to match contributions to after-tax portions of the 401k. I know for sure that others on Boglehead DO know the answer. But not me. :D
Sure they can. Megacorp does. That made Mega Backdoor really easy. I just put my contribution at the max allowed (30% in latter days) and it would switch to after-tax when the deferral limit was reached, and matching went along. You could if you wanted have it all in after-tax.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

chemeng
Posts: 74
Joined: Wed Jan 16, 2013 6:14 pm

Re: 401k loan to get new employer's company match

Post by chemeng » Thu May 17, 2018 1:04 pm

Earl Lemongrab wrote:
Thu May 17, 2018 12:58 pm
neurosphere wrote:
Wed May 16, 2018 3:16 pm
OnLevel wrote:
Wed May 16, 2018 1:42 pm
New company doesn't know about the 16000 you already contributed, so you could just do non-taxable contributions and still get the match.
chemeng wrote:
Wed May 16, 2018 2:07 pm
How does one elect non-taxable contributions (did not see this option in the plan administrator's website)?
I assume the advice was supposed to be to make non-Roth "after-tax" contributions. These contributions, if the employer allows them, can be in addition to the $18,500 limit. However I do not know if employers are allowed to match contributions to after-tax portions of the 401k. I know for sure that others on Boglehead DO know the answer. But not me. :D
Sure they can. Megacorp does. That made Mega Backdoor really easy. I just put my contribution at the max allowed (30% in latter days) and it would switch to after-tax when the deferral limit was reached, and matching went along. You could if you wanted have it all in after-tax.
Unfortunately my new employer does not allow for after-tax contributions. I've been reading a lot of threads on overcontributing, then receiving an excess distribution, but most people indicated the match would also be withdrawn. Any other thoughts?

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Earl Lemongrab
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Re: 401k loan to get new employer's company match

Post by Earl Lemongrab » Thu May 17, 2018 1:07 pm

Did your old company match? Some people have reported over-contributing at the new company and trying to get the old one to do the correction. However, they have little incentive to cooperate.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

chemeng
Posts: 74
Joined: Wed Jan 16, 2013 6:14 pm

Re: 401k loan to get new employer's company match

Post by chemeng » Thu May 17, 2018 1:08 pm

Earl Lemongrab wrote:
Thu May 17, 2018 1:07 pm
Did your old company match? Some people have reported over-contributing at the new company and trying to get the old one to do the correction. However, they have little incentive to cooperate.
The old company did match, but I wasn't there long enough for it to vest. Ideally, this would be the best option, to have old employer do the correction, but you're right, they don't have much incentive.

fiskalisch gesinnt
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Re: 401k loan to get new employer's company match

Post by fiskalisch gesinnt » Thu May 17, 2018 1:32 pm

Are the 401k administrators for the old and new company the same? If not how would they have the full picture to know that you over contributed? Wouldn't this have to be identified by you to request an over contribution? Seems like if no one was paying attention (even the OP), then it would be identified until tax time when entering the W-2 info. I don't know what the rules are about the order the contributions were made in when it comes to getting excess refunded, i.e. once past the limit, the money must be refunded by the current company.

fiskalisch gesinnt
Posts: 23
Joined: Mon Sep 11, 2017 3:34 pm

Re: 401k loan to get new employer's company match

Post by fiskalisch gesinnt » Thu May 17, 2018 1:35 pm

I also forgot to ask, are you over the annual deferred contribution limit for the year in question ($55k 2018, $54k 2017), which include the match?

Come to think about it a bit more. I've seen employees over contribute (deferred $54k limit) on purpose in order to get the maximum match allowed and then the administrator returns the excess the following year after they completed their testing.

chemeng
Posts: 74
Joined: Wed Jan 16, 2013 6:14 pm

Re: 401k loan to get new employer's company match

Post by chemeng » Thu May 17, 2018 1:40 pm

fiskalisch gesinnt wrote:
Thu May 17, 2018 1:32 pm
Are the 401k administrators for the old and new company the same? If not how would they have the full picture to know that you over contributed? Wouldn't this have to be identified by you to request an over contribution? Seems like if no one was paying attention (even the OP), then it would be identified until tax time when entering the W-2 info. I don't know what the rules are about the order the contributions were made in when it comes to getting excess refunded, i.e. once past the limit, the money must be refunded by the current company.
The 401k administrators are not the same, so they would not know that I overcontributed. The comment above was that the previous admin would not have any incentive to help me out since I did not overcontribute while I was part of their plan. I am not over the total annual 55k limit.

The option I'm considering at this point is to overcontribute and accept the double taxation. I'd still need to calculate the taxes, but it looks like I would come out ahead doing so.

fiskalisch gesinnt
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Joined: Mon Sep 11, 2017 3:34 pm

Re: 401k loan to get new employer's company match

Post by fiskalisch gesinnt » Thu May 17, 2018 1:55 pm

chemeng wrote:
Thu May 17, 2018 1:40 pm
fiskalisch gesinnt wrote:
Thu May 17, 2018 1:32 pm
Are the 401k administrators for the old and new company the same? If not how would they have the full picture to know that you over contributed? Wouldn't this have to be identified by you to request an over contribution? Seems like if no one was paying attention (even the OP), then it would be identified until tax time when entering the W-2 info. I don't know what the rules are about the order the contributions were made in when it comes to getting excess refunded, i.e. once past the limit, the money must be refunded by the current company.
The 401k administrators are not the same, so they would not know that I overcontributed. The comment above was that the previous admin would not have any incentive to help me out since I did not overcontribute while I was part of their plan. I am not over the total annual 55k limit.

The option I'm considering at this point is to overcontribute and accept the double taxation. I'd still need to calculate the taxes, but it looks like I would come out ahead doing so.
Where does the double tax come in? I was assuming this was a traditional 401k (maybe it is a roth 401k?), which would reduce your current taxable income, but then be taxed upon excess return. Maybe I'm missing something.

chemeng
Posts: 74
Joined: Wed Jan 16, 2013 6:14 pm

Re: 401k loan to get new employer's company match

Post by chemeng » Thu May 17, 2018 3:33 pm

fiskalisch gesinnt wrote:
Thu May 17, 2018 1:55 pm
chemeng wrote:
Thu May 17, 2018 1:40 pm
fiskalisch gesinnt wrote:
Thu May 17, 2018 1:32 pm
Are the 401k administrators for the old and new company the same? If not how would they have the full picture to know that you over contributed? Wouldn't this have to be identified by you to request an over contribution? Seems like if no one was paying attention (even the OP), then it would be identified until tax time when entering the W-2 info. I don't know what the rules are about the order the contributions were made in when it comes to getting excess refunded, i.e. once past the limit, the money must be refunded by the current company.
The 401k administrators are not the same, so they would not know that I overcontributed. The comment above was that the previous admin would not have any incentive to help me out since I did not overcontribute while I was part of their plan. I am not over the total annual 55k limit.

The option I'm considering at this point is to overcontribute and accept the double taxation. I'd still need to calculate the taxes, but it looks like I would come out ahead doing so.
Where does the double tax come in? I was assuming this was a traditional 401k (maybe it is a roth 401k?), which would reduce your current taxable income, but then be taxed upon excess return. Maybe I'm missing something.
Per https://www.irs.gov/retirement-plans/pl ... the-limits:

Excess not withdrawn by April 15. If the employee does not take out the excess deferral by April 15, the excess, though taxable in the year of deferral, is not included in the employee's cost basis in figuring the taxable amount of any eventual benefits or distributions under the plan. In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. Also, if the entire deferral is allowed to stay in the plan, the plan may not be a qualified plan.

fiskalisch gesinnt
Posts: 23
Joined: Mon Sep 11, 2017 3:34 pm

Re: 401k loan to get new employer's company match

Post by fiskalisch gesinnt » Fri May 18, 2018 1:30 pm

chemeng wrote:
Thu May 17, 2018 3:33 pm
fiskalisch gesinnt wrote:
Thu May 17, 2018 1:55 pm
chemeng wrote:
Thu May 17, 2018 1:40 pm
fiskalisch gesinnt wrote:
Thu May 17, 2018 1:32 pm
Are the 401k administrators for the old and new company the same? If not how would they have the full picture to know that you over contributed? Wouldn't this have to be identified by you to request an over contribution? Seems like if no one was paying attention (even the OP), then it would be identified until tax time when entering the W-2 info. I don't know what the rules are about the order the contributions were made in when it comes to getting excess refunded, i.e. once past the limit, the money must be refunded by the current company.
The 401k administrators are not the same, so they would not know that I overcontributed. The comment above was that the previous admin would not have any incentive to help me out since I did not overcontribute while I was part of their plan. I am not over the total annual 55k limit.

The option I'm considering at this point is to overcontribute and accept the double taxation. I'd still need to calculate the taxes, but it looks like I would come out ahead doing so.
Where does the double tax come in? I was assuming this was a traditional 401k (maybe it is a roth 401k?), which would reduce your current taxable income, but then be taxed upon excess return. Maybe I'm missing something.
Per https://www.irs.gov/retirement-plans/pl ... the-limits:

Excess not withdrawn by April 15. If the employee does not take out the excess deferral by April 15, the excess, though taxable in the year of deferral, is not included in the employee's cost basis in figuring the taxable amount of any eventual benefits or distributions under the plan. In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. Also, if the entire deferral is allowed to stay in the plan, the plan may not be a qualified plan.
I see, I wasn't aware of the rule for excess returned after April 15th. Then hopefully the plan administrator can return the funds to you by April 15th. The question still remains on how your employer will handle the match. I believe my employer would not request the match be returned. Your 401k plan document should be able to shed light into this question.

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