over 55k in 401k with profit-sharing...

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Zeppcoustic
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over 55k in 401k with profit-sharing...

Post by Zeppcoustic » Fri Oct 12, 2018 10:26 am

Hi guys.

Through 9 months of this year, I have had almost $56k go into my 401k. I contribute $1540 a month and my employer adds match and profit sharing components. Not sure if my last 3 checks will total $0 across all 3 components; even if so, I will still be over the limit a bit. Or I could be over by $15-20k.

Can someone explain? A colleague is under impression that profit-sharing component does not count towards $55k limit, but I believe it does.

bryanm
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Re: over 55k in 401k with profit-sharing...

Post by bryanm » Fri Oct 12, 2018 10:34 am

The limit includes profit sharing:
Total employee and employer contributions (including forfeitures) - the lesser of 100% of an employee’s compensation or $55,000 for 2018 ($54,000 for 2017 not including "catch-up" elective deferrals of $6,000 in 2015 - 2018 for employees age 50 or older) (IRC section 415(c))
https://www.irs.gov/retirement-plans/40 ... nual-limit

I think many plan sponsors won't let you go over, but I'm not sure what happens if you do. Nothing good I suspect.

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vineviz
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Re: over 55k in 401k with profit-sharing...

Post by vineviz » Fri Oct 12, 2018 10:37 am

Zeppcoustic wrote:
Fri Oct 12, 2018 10:26 am
Hi guys.

Through 9 months of this year, I have had almost $56k go into my 401k. I contribute $1540 a month and my employer adds match and profit sharing components. Not sure if my last 3 checks will total $0 across all 3 components; even if so, I will still be over the limit a bit. Or I could be over by $15-20k.

Can someone explain? A colleague is under impression that profit-sharing component does not count towards $55k limit, but I believe it does.
If you are 49 years old or younger, the total 401k contribution can be up to $55,000 from all sources (including employer contributions from match and/or profit sharing).

If you are 50 years old or older, you can contribute up to an additional $6,000 (or $61,000 total).
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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vineviz
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Re: over 55k in 401k with profit-sharing...

Post by vineviz » Fri Oct 12, 2018 10:41 am

bryanm wrote:
Fri Oct 12, 2018 10:34 am
The limit includes profit sharing:
Total employee and employer contributions (including forfeitures) - the lesser of 100% of an employee’s compensation or $55,000 for 2018 ($54,000 for 2017 not including "catch-up" elective deferrals of $6,000 in 2015 - 2018 for employees age 50 or older) (IRC section 415(c))
https://www.irs.gov/retirement-plans/40 ... nual-limit

I think many plan sponsors won't let you go over, but I'm not sure what happens if you do. Nothing good I suspect.
If the employee over-contributes, they'll need to contact the plan sponsor and ask that the difference (called an excess deferral) be paid out of the plan.

https://www.irs.gov/retirement-plans/pl ... the-limits

Best to do it sooner rather than later so you don't have to amend your tax return.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Spirit Rider
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Re: over 55k in 401k with profit-sharing...

Post by Spirit Rider » Fri Oct 12, 2018 10:48 am

vineviz wrote:
Fri Oct 12, 2018 10:37 am
If you are 50 years old or older, you can contribute up to an additional $6,000 (or $61,000 total).
It is important to understand that the annual addition limit does not change if you are >= 50. It is just that catch-up contributions are not included in the annual addition limit.

The additional $6,000 can not come from profit sharing.

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vineviz
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Re: over 55k in 401k with profit-sharing...

Post by vineviz » Fri Oct 12, 2018 10:57 am

Spirit Rider wrote:
Fri Oct 12, 2018 10:48 am
vineviz wrote:
Fri Oct 12, 2018 10:37 am
If you are 50 years old or older, you can contribute up to an additional $6,000 (or $61,000 total).
It is important to understand that the annual addition limit does not change if you are >= 50. It is just that catch-up contributions are not included in the annual addition limit.

The additional $6,000 can not come from profit sharing.
+1

My reply made that murky/misleading.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

WhiteMaxima
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Re: over 55k in 401k with profit-sharing...

Post by WhiteMaxima » Fri Oct 12, 2018 11:01 am

i strongly against put profit sharing into 401k. if you over 55k, you are going to miss the company match. because employer will stop the match if your over 55k irs limit.

Spirit Rider
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Re: over 55k in 401k with profit-sharing...

Post by Spirit Rider » Fri Oct 12, 2018 11:03 am

vineviz wrote:
Fri Oct 12, 2018 10:41 am
I think many plan sponsors won't let you go over, but I'm not sure what happens if you do. Nothing good I suspect.
It is the plan's responsibility to ensure the annual addition limit is not exceeded.

The IRS has issued very specific guidance on what contributions should be returned when exceeding annual addition limit is inadvertently exceeded.. It generally should not be to the detriment of the participants.

This generally means that employer contributions should be returned last. Usually, any employee after-tax contributions are returned and then any employee elective contributions and finally if necessary employer contributions.

However, there are specific limited circumstances where the employer contributions can be returned earlier. The OP will either have to wait and see or contact his employer or plan administrator.

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onthecusp
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Re: over 55k in 401k with profit-sharing...

Post by onthecusp » Fri Oct 12, 2018 11:08 am

WhiteMaxima wrote:
Fri Oct 12, 2018 11:01 am
i strongly against put profit sharing into 401k. if you over 55k, you are going to miss the company match. because employer will stop the match if your over 55k irs limit.
Many plans do a "true up" early in the following year so that one does not miss out on the match. But it is not universal. Need to ask the plan experts in human resources.

WhiteMaxima
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Re: over 55k in 401k with profit-sharing...

Post by WhiteMaxima » Fri Oct 12, 2018 11:14 am

Because your wage is fixed and profit sharing is a variable. If you put certain % of you wage into 401k. What if you profit is huge (let's say 55K), then your whole year DCA will be null and no match. Normally profit share has no company match.

Spirit Rider
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Re: over 55k in 401k with profit-sharing...

Post by Spirit Rider » Fri Oct 12, 2018 11:21 am

Profit Sharing is an employer contribution just like employer match. Of course profit sharing is not matched.

Does it really matter if your employer contributions up to the annual addition limit are employer matches or profit sharing.

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vineviz
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Re: over 55k in 401k with profit-sharing...

Post by vineviz » Fri Oct 12, 2018 11:30 am

Spirit Rider wrote:
Fri Oct 12, 2018 11:03 am
vineviz wrote:
Fri Oct 12, 2018 10:41 am
I think many plan sponsors won't let you go over, but I'm not sure what happens if you do. Nothing good I suspect.
It is the plan's responsibility to ensure the annual addition limit is not exceeded.
For the record, the quoted statement is not mine.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Zeppcoustic
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Re: over 55k in 401k with profit-sharing...

Post by Zeppcoustic » Fri Oct 12, 2018 11:59 am

Spirit Rider wrote:
Fri Oct 12, 2018 11:03 am
vineviz wrote:
Fri Oct 12, 2018 10:41 am
I think many plan sponsors won't let you go over, but I'm not sure what happens if you do. Nothing good I suspect.
It is the plan's responsibility to ensure the annual addition limit is not exceeded.

The IRS has issued very specific guidance on what contributions should be returned when exceeding annual addition limit is inadvertently exceeded.. It generally should not be to the detriment of the participants.

This generally means that employer contributions should be returned last. Usually, any employee after-tax contributions are returned and then any employee elective contributions and finally if necessary employer contributions.

However, there are specific limited circumstances where the employer contributions can be returned earlier. The OP will either have to wait and see or contact his employer or plan administrator.
Just got off the phone with Schwab. They say extra contribs can be pulled out of plan, and monies returned to me via income from employer. Main issue I see is getting my max $18.5k deduction this year. I have only contributed $14k YTD. Rest is from employer.

bhsince87
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Joined: Thu Oct 03, 2013 1:08 pm

Re: over 55k in 401k with profit-sharing...

Post by bhsince87 » Fri Oct 12, 2018 12:00 pm

Spirit Rider wrote:
Fri Oct 12, 2018 11:03 am
vineviz wrote:
Fri Oct 12, 2018 10:41 am
I think many plan sponsors won't let you go over, but I'm not sure what happens if you do. Nothing good I suspect.
It is the plan's responsibility to ensure the annual addition limit is not exceeded.

The IRS has issued very specific guidance on what contributions should be returned when exceeding annual addition limit is inadvertently exceeded.. It generally should not be to the detriment of the participants.

This generally means that employer contributions should be returned last. Usually, any employee after-tax contributions are returned and then any employee elective contributions and finally if necessary employer contributions.

However, there are specific limited circumstances where the employer contributions can be returned earlier. The OP will either have to wait and see or contact his employer or plan administrator.
Yes, this is what happened to me. I accidentally went over by about $9k a few years ago. I didn't realize there was a limit. The plan administrator figured it out about 3 months into the following year.

They took the excess from my after-tax contributions, and sent me a check for that amount.

Because it was after tax contributions, there was no need to file an amended return for the previous year.

However, at the end of that year, they sent me a Form 1099-R which I needed to file with that years taxes. It explained that about $9000 was an after tax contribution, so I didn't need to pay tax on that.

However, about $700 were gains that occured while the excess amount was in the account, and I did need to pay tax on that amount.
Retirement: When you reach a point where you have enough. Or when you've had enough.

bryanm
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Joined: Mon Aug 13, 2018 3:48 pm

Re: over 55k in 401k with profit-sharing...

Post by bryanm » Fri Oct 12, 2018 12:11 pm

Zeppcoustic wrote:
Fri Oct 12, 2018 11:59 am
Just got off the phone with Schwab. They say extra contribs can be pulled out of plan, and monies returned to me via income from employer. Main issue I see is getting my max $18.5k deduction this year. I have only contributed $14k YTD. Rest is from employer.
I don't think you'll be able to get the max deduction this year. The pitfalls of having too much free money.

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