Excess 401k contribution and after tax 401k

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Meaty
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Excess 401k contribution and after tax 401k

Post by Meaty » Tue Mar 31, 2020 10:22 am

I’ve joined a new employer who has a better match than my previous organization. If I max out my 401k at the new employer, even though I already contributed to my prior employer plan, how do I rectify that at year end?

Also, my new employer offers an after tax 401k option. What considerations should I think about before signing up for that option?
"Discipline equals Freedom" - Jocko Willink

SS Rambo
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Re: Excess 401k contribution and after tax 401k

Post by SS Rambo » Tue Mar 31, 2020 10:42 am

How much was contributed to the old 401k? Are you over age 50? What percentage is required to get the full match at the new employer? When you say “max out” do you mean the $19k or the $57k limit?

There is a lot more information needed if you want actionable recommendations, but you cannot exceed the contribution limits and it is an extreme pain to fix. All that can be said at this point, plan to use that after-tax option at the new employer (you should still get the match).

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Re: Excess 401k contribution and after tax 401k

Post by Meaty » Tue Mar 31, 2020 11:02 am

SS Rambo wrote:
Tue Mar 31, 2020 10:42 am
How much was contributed to the old 401k? Are you over age 50? What percentage is required to get the full match at the new employer? When you say “max out” do you mean the $19k or the $57k limit?

There is a lot more information needed if you want actionable recommendations, but you cannot exceed the contribution limits and it is an extreme pain to fix. All that can be said at this point, plan to use that after-tax option at the new employer (you should still get the match).
About 4K to the old 401K. Under age 50. 8% is required to get the full match. Now that I have the option, I plan to contribute after tax up to 57.

I’m starting to learn about the mega back door roth as the new plan allows for in service withdrawals
"Discipline equals Freedom" - Jocko Willink

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Meaty
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Re: Excess 401k contribution and after tax 401k

Post by Meaty » Tue Mar 31, 2020 11:16 am

I’m also looking at the match, and they have 2 separate ones that will equal $35,000. If you add my contribution at 19k that puts me nearly to the 57k max so I’m not sure there’s much after tax space to use
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SS Rambo
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Re: Excess 401k contribution and after tax 401k

Post by SS Rambo » Tue Mar 31, 2020 12:03 pm

Congrats on the new job, it seems to have a great retirement plan!

To confirm:
  • Original 401k recieved $4k of employee + employer contributions?
  • If you contribute 8% of salary for the rest of the year at Employer 2, is that more or less than $15.5K?
  • Your new employer match, which equals a massive $35k, is that what you would recieve in a full year? Or in 2020 (partial year)?
Worth noting, if your plan allows in-plan conversions of the after-tax money to Roth, you dp not have to do the in-service distribution in order to Mega Backdoor. An in-service distribution would allow you to have more investment options (if your plan does not satisfy you) and could help with balance-based rewards like BoA's tired reward system. On the flip side, in-service distributions are a huge hassle, risk of error, and takes your money out of the market for some time (I don't know of any 401k admin that allows ACATS to an IRA).

You seem to have the right grasp on things. As long as you do not over contribute to wither the $19.5k Roth/Traditional limit or the $57k total limit you are fine. Might mean you have to manually adjust your paychecks a few times.

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Re: Excess 401k contribution and after tax 401k

Post by Meaty » Tue Mar 31, 2020 1:22 pm

SS Rambo wrote:
Tue Mar 31, 2020 12:03 pm
Congrats on the new job, it seems to have a great retirement plan!

To confirm:
  • Original 401k recieved $4k of employee + employer contributions?
  • If you contribute 8% of salary for the rest of the year at Employer 2, is that more or less than $15.5K?
  • Your new employer match, which equals a massive $35k, is that what you would recieve in a full year? Or in 2020 (partial year)?
Worth noting, if your plan allows in-plan conversions of the after-tax money to Roth, you dp not have to do the in-service distribution in order to Mega Backdoor. An in-service distribution would allow you to have more investment options (if your plan does not satisfy you) and could help with balance-based rewards like BoA's tired reward system. On the flip side, in-service distributions are a huge hassle, risk of error, and takes your money out of the market for some time (I don't know of any 401k admin that allows ACATS to an IRA).

You seem to have the right grasp on things. As long as you do not over contribute to wither the $19.5k Roth/Traditional limit or the $57k total limit you are fine. Might mean you have to manually adjust your paychecks a few times.
$4k is my contributions to my old plan. That employer contributed some too but I don’t have the figure.

8% of my salary for the rest of the year would exceed 15.5.

My new employer match would be 35,000 for the full year so probably a bit less since I just started in late march
"Discipline equals Freedom" - Jocko Willink

SS Rambo
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Re: Excess 401k contribution and after tax 401k

Post by SS Rambo » Tue Mar 31, 2020 1:35 pm

Sounds way easier to just contribute your 8%+ into after-tax for the rest of the year. Convert it to Roth at the end of the year (either via in-plan conversion, or in-service distribution). If you're committed to maxing out the pre-tax portion this year, you're just going to have to do the math a+b < $19.5k and a+b+c+d+e < $57k, knowing that going over the limits in either equation is a massive headache.

a = employee Roth/Trad contributions to Plan A
b = employee Roth/Trad contributions to Plan B
c = after-tax contributions to Plan B
d = employer match to Plan A
e = employer match to Plan B

Good luck in whatever you choose!

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Re: Excess 401k contribution and after tax 401k

Post by DavidC » Tue Mar 31, 2020 8:38 pm

SS Rambo wrote:
Tue Mar 31, 2020 1:35 pm
Sounds way easier to just contribute your 8%+ into after-tax for the rest of the year. Convert it to Roth at the end of the year (either via in-plan conversion, or in-service distribution).
Assuming the employer matches after-tax contributions, this is the simplest option if you're ok skipping before-tax contributions this year.
SS Rambo wrote:
Tue Mar 31, 2020 1:35 pm
If you're committed to maxing out the pre-tax portion this year, you're just going to have to do the math a+b < $19.5k and a+b+c+d+e < $57k, knowing that going over the limits in either equation is a massive headache.

a = employee Roth/Trad contributions to Plan A
b = employee Roth/Trad contributions to Plan B
c = after-tax contributions to Plan B
d = employer match to Plan A
e = employer match to Plan B
Assuming the old and new employer are unrelated, the $57k limit applies separately to each employer which makes the equations a+b < $19.5k, a+d < $57k and b+c+e < $57k. So b must be no more than $15.5k and c must be no more than $22k - b.

Side-note, I tried plotting these equations in WolframAlpha but I'm not satisfied with the results... but I'm not an expert with WolframAlpha either.
In true boglehead fashion my chief concern is saving enough to withstand 7 consecutive biblical plagues. - TheNightsToCome

SS Rambo
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Re: Excess 401k contribution and after tax 401k

Post by SS Rambo » Wed Apr 01, 2020 1:50 pm

DavidC wrote:
Tue Mar 31, 2020 8:38 pm
Side-note, I tried plotting these equations in WolframAlpha but I'm not satisfied with the results... but I'm not an expert with WolframAlpha either.
Great use of Wolfram Alpha!

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