Company 401k contbr capped as % of paycheck

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wtarbing
Posts: 5
Joined: Thu Aug 23, 2018 11:22 am

Company 401k contbr capped as % of paycheck

Post by wtarbing » Thu Aug 23, 2018 11:40 am

Hello All,

A quick backstory - i was laid off 15 Jan, 2018, as a result my company was not allowing any 2018 401k contributions under the existing plan (all employees were laid off due to a sale of the company).

I started my next job beginning of May 2018. As per company policy i had to wait 3 months before gaining eligibility to contribute into the 401k plan.

Now that it is august and i am eligible i've run into a snag - when i set up my account through their chosen custodian (Fidelity) and went to set my contribution rate there is a limit of 30% of the pre-tax amount that i receive each pay period.

Theoretically speaking, if someone who earns 60k sets the max contribution rate they'll only contribute 18/18.5 limit.
In my case, with only 9 pay period left i won't be able to come close to maxing the full 18.5k as planned.

I've reached out to HR to confirm that this is in fact the case, that i cannot set my contribution rate any higher than the 30% and they are sticking to this narrative.

I dont understand why this would be the policy.. as i only view it as a disservice to the employee when considering the program:

Company matches up to 6% of employee base salary contributions, plus an additional 1.5% without any needed action...pretty decent

It seems like i'm stuck between a rock and a hard place as far as this year is concerned....
I've already maxed out our traditional IRA's for my wife and I to the 11k max.

If you were in my shoes, what how would you optimize investing the dollars intended to go towards maxing my 401k?
They do have a roth option (which as explained by HR is really there to service the individuals who earn over 308k/yr where 6% match exceeds 18.k cap) but if i'm not mistaken my best course of action is to contribute what i can to the traditional 401k and the rest into the roth as opposed to a taxable brokerage account.

Your thoughts and advice are most appreciated.

PFInterest
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Re: Company 401k contbr capped as % of paycheck

Post by PFInterest » Thu Aug 23, 2018 1:11 pm

the policy is the policy
set it to 30%.
i dont see you being stuck anywhere.
are you low enough income to deduct tIRAs? could consider r401k.
also thats not what r401ks are for.
you get 18.5 for either the trad or Roth 401k. not both.

niceguy7376
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Re: Company 401k contbr capped as % of paycheck

Post by niceguy7376 » Thu Aug 23, 2018 1:24 pm

There are company policies on what is the max % of your pay that you can contribute to 401k.
roth 401k and trad 401k for you as employee totals 18.5K and thus that wouldnt make much difference in your scenario.

Even if employee contributes to roth 401k, employer match is always in trad side

On a side note, are you really able to deduct trad iras?

bradpevans
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Re: Company 401k contbr capped as % of paycheck

Post by bradpevans » Thu Aug 23, 2018 1:47 pm

wtarbing wrote:
Thu Aug 23, 2018 11:40 am
Hello All,

A quick backstory - i was laid off 15 Jan, 2018, as a result my company was not allowing any 2018 401k contributions under the existing plan (all employees were laid off due to a sale of the company).

I started my next job beginning of May 2018. As per company policy i had to wait 3 months before gaining eligibility to contribute into the 401k plan.

Now that it is august and i am eligible i've run into a snag - when i set up my account through their chosen custodian (Fidelity) and went to set my contribution rate there is a limit of 30% of the pre-tax amount that i receive each pay period.

Theoretically speaking, if someone who earns 60k sets the max contribution rate they'll only contribute 18/18.5 limit.
In my case, with only 9 pay period left i won't be able to come close to maxing the full 18.5k as planned.

I've reached out to HR to confirm that this is in fact the case, that i cannot set my contribution rate any higher than the 30% and they are sticking to this narrative.

I dont understand why this would be the policy.. as i only view it as a disservice to the employee when considering the program:

Company matches up to 6% of employee base salary contributions, plus an additional 1.5% without any needed action...pretty decent

It seems like i'm stuck between a rock and a hard place as far as this year is concerned....
I've already maxed out our traditional IRA's for my wife and I to the 11k max.

If you were in my shoes, what how would you optimize investing the dollars intended to go towards maxing my 401k?
They do have a roth option (which as explained by HR is really there to service the individuals who earn over 308k/yr where 6% match exceeds 18.k cap) but if i'm not mistaken my best course of action is to contribute what i can to the traditional 401k and the rest into the roth as opposed to a taxable brokerage account.

Your thoughts and advice are most appreciated.
FWIW, my MegaCorp has the same 30% (per paycheck) limit

Do you have BOTH of these?
a) After tax 401K?
b) in service rollover?

My plan does, so on my bonus check i bump each to 30%, and soon thereafter move the After Tax 401K in Roth IRA
(aka Mega Backdoor Roth)

TropikThunder
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Re: Company 401k contbr capped as % of paycheck

Post by TropikThunder » Thu Aug 23, 2018 1:55 pm

wtarbing wrote:
Thu Aug 23, 2018 11:40 am
They do have a roth option (which as explained by HR is really there to service the individuals who earn over 308k/yr where 6% match exceeds 18.k cap)
Either the HR rep explained this poorly, you misunderstood, or they don’t know what they’re talking about. The employer match doesn’t count towards the employee limit of $18,500.

megabad
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Re: Company 401k contbr capped as % of paycheck

Post by megabad » Thu Aug 23, 2018 2:15 pm

wtarbing wrote:
Thu Aug 23, 2018 11:40 am
Hello All,

A quick backstory - i was laid off 15 Jan, 2018, as a result my company was not allowing any 2018 401k contributions under the existing plan (all employees were laid off due to a sale of the company).

I started my next job beginning of May 2018. As per company policy i had to wait 3 months before gaining eligibility to contribute into the 401k plan.

Now that it is august and i am eligible i've run into a snag - when i set up my account through their chosen custodian (Fidelity) and went to set my contribution rate there is a limit of 30% of the pre-tax amount that i receive each pay period.

Theoretically speaking, if someone who earns 60k sets the max contribution rate they'll only contribute 18/18.5 limit.
In my case, with only 9 pay period left i won't be able to come close to maxing the full 18.5k as planned.

I've reached out to HR to confirm that this is in fact the case, that i cannot set my contribution rate any higher than the 30% and they are sticking to this narrative.

I dont understand why this would be the policy.. as i only view it as a disservice to the employee when considering the program:
Very common policy. Be thankful the limit is 30%, that seems high to me. Our megacorp does this to prevent ACP testing failure. I was told without the limit we can get close to failure primarily due to after tax contributions.

Company matches up to 6% of employee base salary contributions, plus an additional 1.5% without any needed action...pretty decent
This is awesome!

It seems like i'm stuck between a rock and a hard place as far as this year is concerned....
I've already maxed out our traditional IRA's for my wife and I to the 11k max.

If you were in my shoes, what how would you optimize investing the dollars intended to go towards maxing my 401k?
Contribute to an HSA.
They do have a roth option (which as explained by HR is really there to service the individuals who earn over 308k/yr where 6% match exceeds 18.k cap) but if i'm not mistaken my best course of action is to contribute what i can to the traditional 401k and the rest into the roth as opposed to a taxable brokerage account.
I agree with prior poster. This last statement does not compute to me.

Your thoughts and advice are most appreciated.

We'll See
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Re: Company 401k contbr capped as % of paycheck

Post by We'll See » Thu Aug 23, 2018 2:30 pm

Also, it is unlikely your traditional ira contributions are deductible because you are covered by a qualified workplace retirement plan for at least one day during the tax year

Spirit Rider
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Re: Company 401k contbr capped as % of paycheck

Post by Spirit Rider » Thu Aug 23, 2018 10:35 pm

megabad wrote:
Thu Aug 23, 2018 2:15 pm
Very common policy. Be thankful the limit is 30%, that seems high to me. Our megacorp does this to prevent ACP testing failure. I was told without the limit we can get close to failure primarily due to after tax contributions.
First, ACP (Actual Contribution Percentage) testing has nothing to do with employee elective contributions. That involves ADP (Actual Deferral Percentage) testing.

A 30% employee elective contribution limit for all employees is actually counter-productive for ADP testing. All HCEs are already limited to a < ($18.5K / $120K = 15.42% employee elective contribution percentage anyway. So the 30% is only limiting NHCE contributions preventing higher contribution percentages from raising the average NHCE rate.

passiveTiger
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Re: Company 401k contbr capped as % of paycheck

Post by passiveTiger » Thu Aug 23, 2018 10:59 pm

We'll See wrote:
Thu Aug 23, 2018 2:30 pm
Also, it is unlikely your traditional ira contributions are deductible because you are covered by a qualified workplace retirement plan for at least one day during the tax year
Maybe. Maybe not.

https://www.irs.gov/retirement-plans/20 ... an-at-work

rgs92
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Re: Company 401k contbr capped as % of paycheck

Post by rgs92 » Thu Aug 23, 2018 11:49 pm

It was always limited to 16% at the large corporations I worked for. 30% is great.

lifeisinmirrors
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Re: Company 401k contbr capped as % of paycheck

Post by lifeisinmirrors » Fri Aug 24, 2018 2:33 am

This is a high quality problem. You have an extremely generous match and 30% is a pretty high contribution limit. The 3 month waiting period is shorter than a lot of plans too.

triggertreat
Posts: 33
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Re: Company 401k contbr capped as % of paycheck

Post by triggertreat » Fri Aug 24, 2018 3:02 am

I guess Im lucky.I am allowed to put in 100% which I am to catch up for the year.

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damjam
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Re: Company 401k contbr capped as % of paycheck

Post by damjam » Fri Aug 24, 2018 3:28 am

Consider yourself lucky on the match.
My partner's MegaCorp allows employee contributions up to 100%, but company match is capped at 4% per pay period with a yearly maximum of 5K.
It's annoying every year to have to juggle the employee contribution percentage to get every last dollar of match yet also max out to IRS limits. Of course this does assume a raise every year, so I guess not so annoying. :wink:

ShowMeTheER
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Re: Company 401k contbr capped as % of paycheck

Post by ShowMeTheER » Fri Aug 24, 2018 4:10 am

There is no good reason they can't change the Plan to bump the 30% up higher. (I got it done at my MegaCorp... I'm in charge of the Plan).

Issue is that it generally only impacts new hires - and specifically new hires that want to contribute to max - so it will never rise to a level of high importance thanks to low volume complaints. Even a C-suite new hire is unlikely to ever make noise on it since they can get to the max so quickly even in a partial year. Best bet is that you ask the Plan operator to tack it onto the next material amendment... sort of a 'as long as we're making changes/getting approvals' mentality.

JBTX
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Re: Company 401k contbr capped as % of paycheck

Post by JBTX » Fri Aug 24, 2018 7:50 am

For decades I've worked for companies that allow a 15% max, and most of the time it gets capped at 10% due to discrimination testing rules. It wasn't until I got here that I heard of plans allowing you to max the $18.5k regardless of income.

JBTX
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Re: Company 401k contbr capped as % of paycheck

Post by JBTX » Fri Aug 24, 2018 7:52 am

Spirit Rider wrote:
Thu Aug 23, 2018 10:35 pm
megabad wrote:
Thu Aug 23, 2018 2:15 pm
Very common policy. Be thankful the limit is 30%, that seems high to me. Our megacorp does this to prevent ACP testing failure. I was told without the limit we can get close to failure primarily due to after tax contributions.
First, ACP (Actual Contribution Percentage) testing has nothing to do with employee elective contributions. That involves ADP (Actual Deferral Percentage) testing.

A 30% employee elective contribution limit for all employees is actually counter-productive for ADP testing. All HCEs are already limited to a < ($18.5K / $120K = 15.42% employee elective contribution percentage anyway. So the 30% is only limiting NHCE contributions preventing higher contribution percentages from raising the average NHCE rate.
As to your second point, then why do mega Corp plans routinely cap at 15%?

If I had to guess, they set it at an amount that keeps the highest non HCE from exceeding the $18500 limit. So if you made $120k that would max you at $18k.

Spirit Rider
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Re: Company 401k contbr capped as % of paycheck

Post by Spirit Rider » Fri Aug 24, 2018 11:15 am

JBTX wrote:
Fri Aug 24, 2018 7:52 am
[As to your second point, then why do mega Corp plans routinely cap at 15%?

If I had to guess, they set it at an amount that keeps the highest non HCE from exceeding the $18500 limit. So if you made $120k that would max you at $18k.
The $18,500 limit must be applied as a dollar limit to all employees regardless of any percentage limit.

If a company has a 15% limit. It most likely is a legacy limit. The current employer contribution limit is 25% of all employee's compensation, not including employee contributions. Prior to 2002 it was 15%, including employee deferrals.

Prior to 2002 employer's routinely limited employee deferrals to 15%. Since the average employee deferral was substantially < 15%. Average employee deferrals + employer contributions were < 15%.
Last edited by Spirit Rider on Fri Aug 24, 2018 11:27 am, edited 2 times in total.

PhilosophyAndrew
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Re: Company 401k contbr capped as % of paycheck

Post by PhilosophyAndrew » Fri Aug 24, 2018 11:26 am

OP, although it is nice to max out your tax deferred space each year, it is no disaster when you find that you cannot do this.

Do you receive any 1099 income from a side gig or the like? If so, you can open a solo 401k and contribute more through that account.

You also have opportunities to invest extra cash in other types of accounts: taxable, Roth, savings bonds, perhaps HSA or 529, etc.

So, I wouldn’t let your employer’s policy or the delays following your change of job concern you — the most important thing is that you are investing a significant amount in a rational and discIplined manner. Don’t sweat the small stuff!


Andy.

MotoTrojan
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Re: Company 401k contbr capped as % of paycheck

Post by MotoTrojan » Fri Aug 24, 2018 11:36 am

triggertreat wrote:
Fri Aug 24, 2018 3:02 am
I guess Im lucky.I am allowed to put in 100% which I am to catch up for the year.
This is rare. Who pays for the taxes not eligible for being deducted?!

JBTX
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Re: Company 401k contbr capped as % of paycheck

Post by JBTX » Fri Aug 24, 2018 12:43 pm

Spirit Rider wrote:
Fri Aug 24, 2018 11:15 am
JBTX wrote:
Fri Aug 24, 2018 7:52 am
[As to your second point, then why do mega Corp plans routinely cap at 15%?

If I had to guess, they set it at an amount that keeps the highest non HCE from exceeding the $18500 limit. So if you made $120k that would max you at $18k.
The $18,500 limit must be applied as a dollar limit to all employees regardless of any percentage limit.

If a company has a 15% limit. It most likely is a legacy limit. The current employer contribution limit is 25% of all employee's compensation, not including employee contributions. Prior to 2002 it was 15%, including employee deferrals.

Prior to 2002 employer's routinely limited employee deferrals to 15%. Since the average employee deferral was substantially < 15%. Average employee deferrals + employer contributions were < 15%.
My point was that if HR didn't want to worry at all about over contributions then 15% should pretty should prevent any non HCES from doing so. It could be a legacy carry over like you say.

triggertreat
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Re: Company 401k contbr capped as % of paycheck

Post by triggertreat » Fri Aug 24, 2018 2:02 pm

MotoTrojan wrote:
Fri Aug 24, 2018 11:36 am
triggertreat wrote:
Fri Aug 24, 2018 3:02 am
I guess Im lucky.I am allowed to put in 100% which I am to catch up for the year.
This is rare. Who pays for the taxes not eligible for being deducted?!
What taxes are you referring too? SS and Medicare are taken off the top based on taxable wages.Insurances ect are pretax and come next.The remainder of what is left is pretax and goes into 401k.The only post tax deduction I had was for optional accident insurance and I payed that upfront for the rest of the year.

jharkin
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Re: Company 401k contbr capped as % of paycheck

Post by jharkin » Fri Aug 24, 2018 2:15 pm

TropikThunder wrote:
Thu Aug 23, 2018 1:55 pm
wtarbing wrote:
Thu Aug 23, 2018 11:40 am
They do have a roth option (which as explained by HR is really there to service the individuals who earn over 308k/yr where 6% match exceeds 18.k cap)
Either the HR rep explained this poorly, you misunderstood, or they don’t know what they’re talking about. The employer match doesn’t count towards the employee limit of $18,500.
The HR rep might have been saying they have an "after tax" option. https://www.bogleheads.org/wiki/After-tax_401(k)
This allows individuals to contribute beyond the usual 18.5k cap, and there are usually ways to take the funds and convert them to roth either in plan or via a rollover distribution.

To the original question - if they have a cap they have a cap. Lots of companies do, I'm lucky that currently its 50%, but I remember in my first job out of college it was only 20%...

megabad
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Re: Company 401k contbr capped as % of paycheck

Post by megabad » Fri Aug 24, 2018 6:10 pm

Spirit Rider wrote:
Thu Aug 23, 2018 10:35 pm
megabad wrote:
Thu Aug 23, 2018 2:15 pm
Very common policy. Be thankful the limit is 30%, that seems high to me. Our megacorp does this to prevent ACP testing failure. I was told without the limit we can get close to failure primarily due to after tax contributions.
First, ACP (Actual Contribution Percentage) testing has nothing to do with employee elective contributions. That involves ADP (Actual Deferral Percentage) testing.

A 30% employee elective contribution limit for all employees is actually counter-productive for ADP testing. All HCEs are already limited to a < ($18.5K / $120K = 15.42% employee elective contribution percentage anyway. So the 30% is only limiting NHCE contributions preventing higher contribution percentages from raising the average NHCE rate.
Sorry, I am not sure I follow. It is my understanding that ACP testing does cover after tax contributions and this would certainly have a great deal to do with employee elective deferrals. Whether the limit affects HCE or NCHEs more is dependent on the company demographics, but statistically speaking, it would almost certainly affect HCEs more.

Spirit Rider
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Re: Company 401k contbr capped as % of paycheck

Post by Spirit Rider » Fri Aug 24, 2018 6:52 pm

megabad wrote:
Fri Aug 24, 2018 6:10 pm
Sorry, I am not sure I follow. It is my understanding that ACP testing does cover after tax contributions and this would certainly have a great deal to do with employee elective deferrals. Whether the limit affects HCE or NCHEs more is dependent on the company demographics, but statistically speaking, it would almost certainly affect HCEs more.
The original post was solely about employee elective contributions. If the OP is complaining about not being able to max out the $18.5K employee elective contribution limit. Clearly, they are not worried about employee after-tax contributions.

My previous post was to point out that a plan percentage limit on employee elective contributions is counter-productive to passing ADP testing. ACP testing has nothing to do with that.

Yes, even if it is a safe harbor 401k plan, ACP testing is required of after-tax contributions. If a plan wanted to prevent ACP test failure due to employee after-tax contributions. They would limit the employee after-tax contribution percentage limit for just HCEs. A universal contribution percentage limit would be counter-productive to passing ACP testing.

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Earl Lemongrab
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Re: Company 401k contbr capped as % of paycheck

Post by Earl Lemongrab » Sat Aug 25, 2018 4:23 pm

The OP's plan sounds a lot like Megacorp's, especially if the 6% match is actually 75% of the first 8%. At Megacorp we had Mega Backdoor Roth available, and those after-tax contribution amounts were the explanation I received when I questioned the contribution limit (at the time like 20%). It keeps well-paid employees from stuffing the 401(k). For me, when I was making my top end salary the best I could do was 12k into the Mega. I would have put more if I could have, after all why not?

Initially this left me well short of the 415(c) limit, although after the pension was frozen, non-elective company contributions were added. Those were starting at 9% of salary for geezers like me, which got it closer.

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