Maxing out $16,500 in 401k question

[amdmaxx]

How does one maxes 401k to exactly $16,500 yearly?
Currently it's a percentage of my salary and it's not an exact science (If I made $50k, I'd put away 33%).
I can only use exact % and it's bi-weekly paychecks.

Is there a strategy to max out exactly $16,500 ( I am under 50).

[WorkToLive]

Many employers will cut off the contributions once you reach the limit. If you change employers during the year, it's up to you to alter your percentage contribution to get as close as possible. Some employers will allow you to specify an exact dollar amount and not simply a percentage of gross pay, too.

[gnosis]

So, since it varies by employer, you'd have to ask your HR dept. about it.

[natureexplorer]

How does one maxes 401k to exactly $16,500 yearly?
Currently it's a percentage of my salary and it's not an exact science (If I made $50k, I'd put away 33%).
I can only use exact % and it's bi-weekly paychecks.

Is there a strategy to max out exactly $16,500 ( I am under 50).

Even if the form seems to require a percentage, they will often also allow a dollar amount.

[Cloud]

I just pick a percentage, say 30%, of my pay knowing that should get me real close. Then come mid November with only 3 check or so left for the year I then tweak the percentage a bit. They also cut me off at $16,500 so I shoot for a few bucks over. Now I just need to remember to increase it next year to hit 17K.

[chipmonk]

Many employers will cut off the contributions once you reach the limit. If you change employers during the year, it's up to you to alter your percentage contribution to get as close as possible. Some employers will allow you to specify an exact dollar amount and not simply a percentage of gross pay, too.

Yeah, my employer does this. I try to max out my 401k contributions as early as possible in the year, while keeping just barely enough for my living expenses, on the theory that if my money is invested and growing tax-free a few months sooner on average, that's a little extra for me down the road in retirement.

[SlammingAces]

Working for a single employer during the year is easy. Your paystub should show that they stop taking out contributions once the 16.5k limit is reached. If you have no employer match, then you should deduct a higher percentage to reach the limit well before the end of the year.

If you have an employer match, you need to read the terms carefully. My employer match is 4% of pay and is per pay period. Percentages get trickier as I have to deduct at least 4% from all pay periods to maximize the match and still reach 16.5k by the end of the year. In this case, I start the year at a percentage that will deduct close to $700 per pay period. I will then tweak percentages for the last 6 pay periods to ensure that the last pay period reaches 16.5k and is more than 4% of pay. I know of several people at my company who maximized before the end of the year and were surprised when HR told them that they did not get a full 4% match.

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P.S. It would be nice if you could just pick a fixed amount to deduct per pay period ... similar to a flexable spending account. Do any companies setup deductions this way?

[ejvyas]

Most cut off after you have reached limit. Even if you have changed jobs eg. I changed job and reported previous figure to Fidelity and asked them if they cut off at 16.5k. They said yes

Changing jobs means you will have to keep track of % for a couple of pay periods in order to make sure the deductions are correct. Do check in Oct/Nov (this period) to make sure you are hitting the target and to make last minute changes

I would suggest just google for "take home pay calculator" and plug in your figures in % + include medical and other deductions. Then check the exact $ amount that you expect to withdraw

[Default User BR]

Be sure to check though. My employer just switches to after-tax contributions with the deferred limit is hit. Of course, I like that feature, as we have in-service rollovers of after-tax. I wish I could contribute more, but we're limited to 25% of salary.



Brian

[BolderBoy]

I've always wondered why an employer would have a % maximum that employees can contribute on the 'salary deferral' side. Why does the employer care so long as the statutory maximum for salary deferral is not exceeded?

When I took my present position, they had such a % limitation and I got them to get rid of it in favor of a total dollar amount (up to the max allowed salary deferral.) When I asked why they ever had a % max, they shrugged and said their CPA instituted it. The CPA would never talk with me about it. My company contributes a fixed % as profit sharing and does not require matching.

Anyone know why an employer ever uses a % maximum on the employee side?

[synergy]

One reason could be that an employer match could be equal to a percent of the employee contribution and that percentage could be eaten up early in the year. For instance, if your employer matches 50% of your contribution, you could draw your whole match very early in the year and skew the employer's budget or you could quickly accumulate your match and then leave the company in March or April. Not sure if this is your employer's rationale but it could be. Limiting your contribution can serve to spread out the employer match over the whole year.

[Duckie]

P.S. It would be nice if you could just pick a fixed amount to deduct per pay period ... similar to a flexable spending account. Do any companies setup deductions this way?

Mine did. I wrote a dollar amount on the forms. In fact, near the end of each year HR would provide information with the exact amount needed to max the next year's plan over 26 pay periods (for people who didn't want to do the math). Of course, most people didn't contribute the max, but the info was there.

[Epsilon Delta]

Anyone know why an employer ever uses a % maximum on the employee side?

Inertia.

Once upon a timer there was a legal limit of IIRC 15%. This had to be written into plans to pass muster with the IRS.
When this requirement was repealed about 15 years ago, most plans found it easier to amend the percentage to 25% or 50% than remove the restriction. Paying for a 1 character change is bad enough, but paying kilo-bucks to lawyers to delete a paragraph just rubs some people the wrong way.

[modal]

What the smallest fractional element you can contribute?

[wlpotts]

I would venture to guess .01%.

That said, I'm not a mathemetician, a fiduciary, a fund manager or an investment advisor, but I'll bet there is a representative of your 401K that will indicate that there is a higher minimum percentage. This is because they ALWAYS get a piece of your money that you put in. If you don't put it in, they don't get their piece of of your money.

[vesalius]

FYI, new 2012 401k max elective contribution is $17,000.

IRS raises 401(k) contribution limit to $17,000

[SlammingAces]

P.S. It would be nice if you could just pick a fixed amount to deduct per pay period ... similar to a flexable spending account. Do any companies setup deductions this way?

Mine did. I wrote a dollar amount on the forms. In fact, near the end of each year HR would provide information with the exact amount needed to max the next year's plan over 26 pay periods (for people who didn't want to do the math). Of course, most people didn't contribute the max, but the info was there.

My company uses Fidelity (through its 401k.com website) and I did not see any fixed-dollar 401k deduction options. I'm pretty sure that the deductions have to be in rounded integer percentages (5%, 6%, etc). I may try to enter fractions of a percent and see what happens. A fixed percentage during the year even using hundredths of a percent won't solve the problem as my total income for the year is not known beforehand--employees often get small monetary awards during the year and our raises come in the middle of the year. I guess I will just have to be satisifed that my 401k has low-cost (ER < 0.06%) index funds and continue to tweak deductions a few times a year.

[longfella]

My company uses Fidelity (through its 401k.com website) and I did not see any fixed-dollar 401k deduction options. I'm pretty sure that the deductions have to be in rounded integer percentages (5%, 6%, etc). ...

Mine uses Fidelity too, and I called them last week asking what to do to max out for the year. They said it would have to be whole percentages, and they cant do dollar amounts. I was told put x% which will be a litte under or put x+1% which will be a little over. It seems if you over contribute, depending on the employer it might directly be put in to the after tax 401k.

[Epsilon Delta]

My company uses Fidelity (through its 401k.com website) and I did not see any fixed-dollar 401k deduction options. I'm pretty sure that the deductions have to be in rounded integer percentages (5%, 6%, etc). ...

Mine uses Fidelity too, and I called them last week asking what to do to max out for the year. They said it would have to be whole percentages, and they cant do dollar amounts. I was told put x% which will be a litte under or put x+1% which will be a little over. It seems if you over contribute, depending on the employer it might directly be put in to the after tax 401k.

Many 401(k) plans allow you to change the contribution percentage at any time. You can use this to get finer control of your annual contribution. n months at x+1% and (12-n) months at x% is equivalent to (x + n/12)%. You can get even closer if you have a shorter pay period.

[longfella]

Many 401(k) plans allow you to change the contribution percentage at any time. You can use this to get finer control of your annual contribution. n months at x+1% and (12-n) months at x% is equivalent to (x + n/12)%. You can get even closer if you have a shorter pay period.

Yeah. That is true. One has to be really careful with the payroll cut-off dates,etc. to make this work. When I made the change Fidelity website said that the change would be effective within 1-2 pay periods. That just throws the predictability out of the window Keeping my fingers crossed to see if the next pay check has the changed contribution amount or not...

[Default User BR]

I've always wondered why an employer would have a % maximum that employees can contribute on the 'salary deferral' side. Why does the employer care so long as the statutory maximum for salary deferral is not exceeded?

I don't know. I guess I should ask. It isn't like it's a holdover, they changed the maximum percentage a few years back. As I mentioned, I'd be happy to put more in after-tax so I could roll it out to a Roth.


Brian

[Default User BR]

It seems if you over contribute, depending on the employer it might directly be put in to the after tax 401k.

This might be a good thing, if the plan also allows in-service rollovers of after-tax amounts.



Brian