Beating $55K annual 401K limit?

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itworks
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Beating $55K annual 401K limit?

Post by itworks » Sun Aug 12, 2018 1:36 am

Inspired by this White Coat Investor post https://www.whitecoatinvestor.com/multiple-401k-rules/, and here is a situation:

1. worked at Employer A for 5 months, and then moved to Employer B
2. While at Employer A, maxed out pretax 401K contribution $18.5, and got ~1.5K match (let us make it as 20K); also contributed 15K after-tax. So total with Employer A is $35K.
3. Now at Employer B, no more pretax contribution, but apparently one still contribute after-tax.

Question: At at Employer B, can one contribute as much as one can (not exceeding the company-imposed cap, and not exceeding $55K)? For example, can one contribute $30K after-tax? That would make total $35K+$30K > the usually-quoted limit of $55K.

According to the WCI post, one should be able to do so, because legitimately these are two 401K accounts from "unrelated employers".

Thoughts?

Uniballer
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Re: Beating $55K annual 401K limit?

Post by Uniballer » Sun Aug 12, 2018 5:59 am

The employee (YOU) can only contribute 18.5K total to all plans in 2018. You might be able to increase your contributions by 6k if you are over 50 (catch-up contributions). To reach 55K you would need your employer(s) to kick in a lot of money.

Spirit Rider
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Re: Beating $55K annual 401K limit?

Post by Spirit Rider » Sun Aug 12, 2018 9:59 am

If they are unrelated employers, the first employer's annual additions are irrelevant for purposes of the annual addition limit at the new employer. The annual addition limit (2018 = $55K) is separate for each unrelated employer.

You can make up to $55K in after-tax contributions subject to plan limitations and if you are an HCE, ACP testing. While not a lot do, you should check to see if new employer matches after-tax contributions.
Last edited by Spirit Rider on Sun Aug 12, 2018 10:02 am, edited 1 time in total.

THY4373
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Re: Beating $55K annual 401K limit?

Post by THY4373 » Sun Aug 12, 2018 10:00 am

Uniballer wrote:
Sun Aug 12, 2018 5:59 am
The employee (YOU) can only contribute 18.5K total to all plans in 2018. You might be able to increase your contributions by 6k if you are over 50 (catch-up contributions). To reach 55K you would need your employer(s) to kick in a lot of money.
18.5k is the combined limit on traditional pre-tax and post-tax Roth 401k contributions. If your plan allows it as mine does you can contribute after-tax non-Roth contributions to your 401k up to the $55k limit which does include employer contributions as well. I have been doing this for a number of years now since my employer allows this and then rolling over to Rorth IRA or my Roth 401k as part of my mega-backdoor-Roth strategy. This year I will put in $18.5k into Trad 401k, another 25k to after-tax non-Roth (to be rolled over to Roth 401k balance) and my employer will put about $11k. Search mega-backdoor Roth here for more details.

I have no input on OPs double dipping strategy as I haven't ever had to look into that.

itworks
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Re: Beating $55K annual 401K limit?

Post by itworks » Sun Aug 12, 2018 12:45 pm

Thank you Spirit Rider. This is precisely what I am looking for.
Spirit Rider wrote:
Sun Aug 12, 2018 9:59 am
If they are unrelated employers, the first employer's annual additions are irrelevant for purposes of the annual addition limit at the new employer. The annual addition limit (2018 = $55K) is separate for each unrelated employer.

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Earl Lemongrab
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Re: Beating $55K annual 401K limit?

Post by Earl Lemongrab » Sun Aug 12, 2018 3:59 pm

If you're lucky, your employer will be like Megacorp. They not only allowed after-tax by itself, but matched the contributions just as they would with pretax and Roth. Of course, you want in-service distribution or Roth conversion of the after-tax available.

It's good that your new plan doesn't make you wait to start contributing.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

itworks
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Re: Beating $55K annual 401K limit?

Post by itworks » Sun Aug 12, 2018 5:44 pm

Earl Lemongrab wrote:
Sun Aug 12, 2018 3:59 pm
If you're lucky, your employer will be like Megacorp. They not only allowed after-tax by itself, but matched the contributions just as they would with pretax and Roth. Of course, you want in-service distribution or Roth conversion of the after-tax available.

It's good that your new plan doesn't make you wait to start contributing.
Yes it is Megacorp, though it does not match after-tax, and it also imposes its own annual limit on after-tax.

I do not know much about the in-service withdrawal yet (and hope I can find it out soon), but I know it allows in-plan conversion from after-tax to Roth 401K, which is still not bad.

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CollegePrudens
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Re: Beating $55K annual 401K limit?

Post by CollegePrudens » Sun Aug 12, 2018 9:31 pm

Interesting thread. I am in a similar situation for 2018 and getting ready to go up to the $55K limit for after-tax 401K on the 2nd employer. I have tested in-service conversions from after-tax 401K to Roth 401K and it seems to be straightforward at my employer's 401K plan (that is with Vanguard).
Live as if you were to die tomorrow; learn as if you were to live forever - Gandhi

madbrain
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Re: Beating $55K annual 401K limit?

Post by madbrain » Sun Aug 19, 2018 10:24 pm

Spirit Rider wrote:
Sun Aug 12, 2018 9:59 am
If they are unrelated employers, the first employer's annual additions are irrelevant for purposes of the annual addition limit at the new employer. The annual addition limit (2018 = $55K) is separate for each unrelated employer.

You can make up to $55K in after-tax contributions subject to plan limitations and if you are an HCE, ACP testing. While not a lot do, you should check to see if new employer matches after-tax contributions.
So, if you have two jobs at unrelated employers, you could in theory contribute $110k to your 401k as long as you don't exceed $18,500 pre-tax between both plans ?

jacoavlu
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Re: Beating $55K annual 401K limit?

Post by jacoavlu » Sun Aug 19, 2018 10:35 pm

The $18,500 number is salary deferral, whether pretax or Roth. That limit applies across all your jobs.

Besides salary deferral, other ways to get money into the plans is employer pretax contributions (profit sharing, match), and elective after tax non Roth employee contributions.

If you max out salary deferral in one job, at second job only employer contributions and employee after tax can go into the plan.

So in two jobs you could have $110k into 401k plans yearly. ($12,000 more if over age 50). Theoretically it could be all pre tax, or all after tax, or anywhere in between.

madbrain
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Re: Beating $55K annual 401K limit?

Post by madbrain » Sun Aug 19, 2018 10:43 pm

jacoavlu wrote:
Sun Aug 19, 2018 10:35 pm
The $18,500 number is salary deferral, whether pretax or Roth. That limit applies across all your jobs.

Besides salary deferral, other ways to get money into the plans is employer pretax contributions (profit sharing, match), and elective after tax non Roth employee contributions.

If you max out salary deferral in one job, at second job only employer contributions and employee after tax can go into the plan.

So in two jobs you could have $110k into 401k plans yearly. ($12,000 more if over age 50). Theoretically it could be all pre tax, or all after tax, or anywhere in between.
How could it be all-pretax money ? Do you mean because of employer contributions, which are made pre-tax ? You could only go to $18,500 in employee pre-tax contributions, right (without catchup).

jacoavlu
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Re: Beating $55K annual 401K limit?

Post by jacoavlu » Sun Aug 19, 2018 10:46 pm

Yes. Theoretically, if you make a lot of money, a plan could be filled entirely by pretax profit sharing. This would typically be an owner making more than $250k W2 salary. And you can do pretax salary deferral.

Or you could do Roth salary deferral, and elective after tax, and have no profit sharing.

AdviseSHS
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Re: Beating $55K annual 401K limit?

Post by AdviseSHS » Sun Aug 19, 2018 11:22 pm

I am interested in this thread as well. Am in a similar situation so posting on this thread rather than creating a new one. I was with Employer A at the start of 2018 and contributed the full $18.5k to Employer A 401k and got a 5k employer match. I left that employer in July 2018.

I joined Employer B in Aug 2018 and so far have not contributed anything to employer B's 401k plan. Employer B matches $6k.

Questions:
If employer B 401k allows both pretax and post tax contributions, Am i eligible to contribute any more money to that plan ? Based on the thread info it seems i may be able to contribute but i am not sure what amount limit and whether that would be pre or post tax. Would appreciate guidance.

jacoavlu
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Re: Beating $55K annual 401K limit?

Post by jacoavlu » Sun Aug 19, 2018 11:26 pm

I presume at employer A you deferred $18.5k of your salary. If so then you have reached the yearly limit. In this case you can not defer any salary in 2018 into employer B’s plan. You need to check the summary plan description or talk to the plan admin and see if employee after tax non Roth contributions are allowed, and if so, if you get a match on these contributions. These after tax contributions are different than salary deferral and are not subject to the $18,500 limit that applies across all plans.

AdviseSHS
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Re: Beating $55K annual 401K limit?

Post by AdviseSHS » Sun Aug 19, 2018 11:52 pm

jacoavlu wrote:
Sun Aug 19, 2018 11:26 pm
I presume at employer A you deferred $18.5k of your salary. If so then you have reached the yearly limit. In this case you can not defer any salary in 2018 into employer B’s plan. You need to check the summary plan description or talk to the plan admin and see if employee after tax non Roth contributions are allowed, and if so, if you get a match on these contributions. These after tax contributions are different than salary deferral and are not subject to the $18,500 limit that applies across all plans.
In the event the Emplyer B plan does allow After Tax non-Roth contributions to the 401k plan, does this allow me to contribute the full 55k as aftert tax 401k contribution since this is for a new employer ?

Spirit Rider
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Re: Beating $55K annual 401K limit?

Post by Spirit Rider » Mon Aug 20, 2018 12:15 am

jacoavlu wrote:
Sun Aug 19, 2018 10:35 pm
The $18,500 number is salary deferral, whether pretax or Roth. That limit applies across all your jobs.

Besides salary deferral, other ways to get money into the plans is employer pretax contributions (profit sharing, match), an elective* after tax non Roth employee contributions.
*Employee after-tax contributions are not elective contributions. Only deferrals and designated Roth contributions are employee elective contributions.
If you max out salary deferral in one job, at second job only employer contributions and employee after tax can go into the plan.

So in two jobs you could have $110k into 401k plans yearly. ($12,000 more if over age 50**). Theoretically it could be all pre tax***, or all after tax***, or anywhere in between***.
**There is no 2018 $61K contribution limit >= age 50 as is common stated. There is an annual addition limit (2018 = $55K) and a catch-up contribution >= age 50 (2018 = $6K). Like the employee elective contribution limit there is only one catch-up contribution limit.

The catch-up contribution is not included in the annual limit and only exists after the maximum employee elective contribution limit (2018 = $18.5K) has been reached. So the maximum contribution limit for two 401k plans of unrelated employers would be $18.5K + $36.5K + 6K = $61K at employer #1 and $55K at employer #2 for a total of $116K, not $122K.

***If you had all employer contributions at employer #1 and all employee after-tax contributions at employer #2, the maximum contributions would be $55K + $55K = $110K.

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