2018 401k limit is $55K - do you max it out? Why/why not?

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2m2037
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2018 401k limit is $55K - do you max it out? Why/why not?

Post by 2m2037 » Mon May 14, 2018 5:06 pm

We just realized that the 401k contribution limit is $55K. We always thought it was $18.5K, but just found out that $18.5K is the elective deferral portion but we can choose to contribute to it on a post-tax basis. A bit late to the game... :oops:

Theoretically, if we are able to, should we max out the $55K in a Roth 401K? My only concern is liquidity. Do any of you share this concern, and if so, how and where do you draw the line? 90% of budgeted capital investments into the Roth 401K and 10% into taxable accounts?

marcopolo
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by marcopolo » Mon May 14, 2018 5:26 pm

2m2037 wrote:
Mon May 14, 2018 5:06 pm
We just realized that the 401k contribution limit is $55K. We always thought it was $18.5K, but just found out that $18.5K is the elective deferral portion but we can choose to contribute to it on a post-tax basis. A bit late to the game... :oops:

Theoretically, if we are able to, should we max out the $55K in a Roth 401K? My only concern is liquidity. Do any of you share this concern, and if so, how and where do you draw the line? 90% of budgeted capital investments into the Roth 401K and 10% into taxable accounts?
While i was working, i maxed out (the cap is adjusted a little bit each year) every year, and then transferred the after-tax contributions to a Roth IRA.
Your plan has to allow something called an "in-service roll out" to be able to do this, so check with the plan administrator. Once it is in the Roth IRA, the same rules apply about accessing principle in Roth (penalty free after 5 years).
Once in a while you get shown the light, in the strangest of places if you look at it right.

metrunt
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by metrunt » Mon May 14, 2018 5:29 pm

You can't just Roth the balance though. There are limits to that as well. Depending on the rules the employer has set up for the 401K, you have other options, such as post-tax contributions and a mega-backdoor Roth.

For me, the lack of liquidity is a feature for not, not a bug. If my money is in a retirement account, I won't be tempted to tap it for risky ventures, nor will I be checking the balance every couple days. I know it's in there for the long haul.

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willthrill81
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by willthrill81 » Mon May 14, 2018 5:29 pm

Do you have access to a traditional 401k as well? Are you eligible to deduct traditional IRA contributions?

Remember that if one is making 4% withdrawals, a married filing jointly couple needs $600k in assets just to cover the 2018 standard deduction of $24k. If possible, all of that initial income should be drawn from tax-deferred assets since it won't be taxed at the Federal level at all. This means that no Federal income tax is paid on the money going in and none is paid on the money coming out either (up to $24k annually of course). Granted, Social Security benefits complicate the situation and do add more weight to the Roth side of the balance, but the point remains.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

tmcc
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by tmcc » Mon May 14, 2018 5:29 pm

why contribute after tax to a 401k if there is no deduction favorability or FIT wage reduction? :shock:

just save the equivalent after tax money to a brokerage......... right? am I missing something obvious?

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willthrill81
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by willthrill81 » Mon May 14, 2018 5:32 pm

tmcc wrote:
Mon May 14, 2018 5:29 pm
why contribute after tax to a 401k if there is no deduction favorability? :shock:

just save the equivalent after tax money to a brokerage......... right?
That's not a bad approach, but the problem with that is you lose the advantage of tax-free growth; capital gains taxes are due upon the sale of appreciated assets, though these can be as low as 0%, and dividends and bond interest are taxed as well on an ongoing basis. However, the disadvantage of the 401k is that all of the withdrawals will be taxed as ordinary income, and those rates can be significantly higher. But that's not the case for all such income; see my above post for why.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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corn18
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by corn18 » Mon May 14, 2018 5:35 pm

I max out to $60.5k (over 50). I do aftertax contributions and then a mega backdoor Roth. Between that and my tIRA backdoor Roths (wife and I), I am adding about $30k/year to my Roth accounts.

2m2037
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by 2m2037 » Mon May 14, 2018 5:41 pm

willthrill81 wrote:
Mon May 14, 2018 5:29 pm
Do you have access to a traditional 401k as well? Are you eligible to deduct traditional IRA contributions?

Remember that if one is making 4% withdrawals, a married filing jointly couple needs $600k in assets just to cover the 2018 standard deduction of $24k. If possible, all of that initial income should be drawn from tax-deferred assets since it won't be taxed at the Federal level at all. This means that no Federal income tax is paid on the money going in and none is paid on the money coming out either (up to $24k annually of course). Granted, Social Security benefits complicate the situation and do add more weight to the Roth side of the balance, but the point remains.
I have access to traditional 401K, but we are over the income limit for IRA contributions. I don't understand your second paragraph on4% withdrawals and standard deductions... are you talking about when we are retired and living off 4% withdrawal of our net assets each year?

2m2037
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by 2m2037 » Mon May 14, 2018 5:42 pm

tmcc wrote:
Mon May 14, 2018 5:29 pm
why contribute after tax to a 401k if there is no deduction favorability or FIT wage reduction? :shock:

just save the equivalent after tax money to a brokerage......... right? am I missing something obvious?
If you put your after tax money in a brokerage, you're paying either income tax or capital gains tax when you sell your investments. If you put it in a Roth 401K, assuming you only cash out at 59.5 years old, you don't pay tax. At least that's my understanding of how it works, and why I want to start contributing to a Roth.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by 2m2037 » Mon May 14, 2018 5:45 pm

corn18 wrote:
Mon May 14, 2018 5:35 pm
I max out to $60.5k (over 50). I do aftertax contributions and then a mega backdoor Roth. Between that and my tIRA backdoor Roths (wife and I), I am adding about $30k/year to my Roth accounts.
I would too, if I were over 50 (sorry, I don't mean this in a "ha ha i'm young and you're old way"), but we are in our late 20s/early 30s and have another 30 years before we get to access our money tax-free! :shock:

Hence the question on what do most BH who can afford to do this do and whether it is a good idea to put that much money away for such a long time.

I sure hope to be in you and your wife's position when we are 50! It would be super to be able to max out our tax advantaged accounts knowing that we'll be able to access the funds in a few years.

2m2037
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by 2m2037 » Mon May 14, 2018 5:46 pm

I'm thinking of:
1. contributing $18.5K to the Traditional 401k account,
2. find out how much the employer match is, and
3. contributing the remaining into a Roth 401K to either.

For example if the employer match amounts to $6.5K, then I would be able to put $35K into the Roth 401K account, instead of into my taxable Vanguard account.

Assuming our emergency fund is full, and we have enough left for monthly expenditure, but nothing left for a taxable Vanguard account.

Good idea... or bad? We are in our late 20s/early 30s.

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willthrill81
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by willthrill81 » Mon May 14, 2018 5:52 pm

2m2037 wrote:
Mon May 14, 2018 5:41 pm
willthrill81 wrote:
Mon May 14, 2018 5:29 pm
Do you have access to a traditional 401k as well? Are you eligible to deduct traditional IRA contributions?

Remember that if one is making 4% withdrawals, a married filing jointly couple needs $600k in assets just to cover the 2018 standard deduction of $24k. If possible, all of that initial income should be drawn from tax-deferred assets since it won't be taxed at the Federal level at all. This means that no Federal income tax is paid on the money going in and none is paid on the money coming out either (up to $24k annually of course). Granted, Social Security benefits complicate the situation and do add more weight to the Roth side of the balance, but the point remains.
I have access to traditional 401K, but we are over the income limit for IRA contributions. I don't understand your second paragraph on4% withdrawals and standard deductions... are you talking about when we are retired and living off 4% withdrawal of our net assets each year?
Yes. When you are retired, not all of your traditional 401k withdrawals would be taxed at the same rate because the tax rates are progressive. For a married filing jointly couple, the first $24k of annual income is not subject to any Federal income because that's the amount of the standard deduction for 2018 and forward. If you were using 4% withdrawals from your portfolio for income, this means that the first $600k of your assets should be in tax-deferred assets (not taxed going in or coming out). The next $19,050 of income is taxed at 10%, and after that, the next $58,350 is taxed at 12%, and so on.

If your current tax rate is 24%, for instance, then it makes sense for you to contribute enough to tax-deferred assets so that during retirement, your withdrawals are taxed at a lower rate than your current 24% which, assuming 4% withdrawals, is $4,725,000 ($165k + $24k). Only once you are on track to have that level of assets does it make good tax sense to start contributing to Roth accounts.

Of course, if Roth is all you have, then you don't have a choice in the matter.
2m2037 wrote:
Mon May 14, 2018 5:46 pm
I'm thinking of:
1. contributing $18.5K to the Traditional 401k account,
2. find out how much the employer match is, and
3. contributing the remaining into a Roth 401K to either.

For example if the employer match amounts to $6.5K, then I would be able to put $35K into the Roth 401K account, instead of into my taxable Vanguard account.

Assuming our emergency fund is full, and we have enough left for monthly expenditure, but nothing left for a taxable Vanguard account.

Good idea... or bad? We are in our late 20s/early 30s.
It depends on what your current balance of tax-deferred assets is. At your age, it's unlikely that you have significant tax-deferred assets. What's your current marginal tax rate?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by Bacchus01 » Mon May 14, 2018 5:57 pm

You are very confused. You cannot put that all directly in a Roth 401k. The $18.5 limit applies to Roth and regular pre-tax 401k. There is no real reason to do after-tax 401k unless you can mega backdoor.

Slacker
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by Slacker » Mon May 14, 2018 6:05 pm

We do not go beyond 18.5K in our 401K(s).
1. Employer doesn't allow it.
2. Employer doesn't have in-service roll over.
3. OPM/TSP will tell you that they just follow the IRS rules for 401K, but clearly they do not follow the entirety of the rules.

2m2037
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by 2m2037 » Mon May 14, 2018 6:07 pm

willthrill81 wrote:
Mon May 14, 2018 5:52 pm
2m2037 wrote:
Mon May 14, 2018 5:41 pm
willthrill81 wrote:
Mon May 14, 2018 5:29 pm
Do you have access to a traditional 401k as well? Are you eligible to deduct traditional IRA contributions?

Remember that if one is making 4% withdrawals, a married filing jointly couple needs $600k in assets just to cover the 2018 standard deduction of $24k. If possible, all of that initial income should be drawn from tax-deferred assets since it won't be taxed at the Federal level at all. This means that no Federal income tax is paid on the money going in and none is paid on the money coming out either (up to $24k annually of course). Granted, Social Security benefits complicate the situation and do add more weight to the Roth side of the balance, but the point remains.
I have access to traditional 401K, but we are over the income limit for IRA contributions. I don't understand your second paragraph on4% withdrawals and standard deductions... are you talking about when we are retired and living off 4% withdrawal of our net assets each year?
Yes. When you are retired, not all of your traditional 401k withdrawals would be taxed at the same rate because the tax rates are progressive. For a married filing jointly couple, the first $24k of annual income is not subject to any Federal income because that's the amount of the standard deduction for 2018 and forward. If you were using 4% withdrawals from your portfolio for income, this means that the first $600k of your assets should be in tax-deferred assets (not taxed going in or coming out). The next $19,050 of income is taxed at 10%, and after that, the next $58,350 is taxed at 12%, and so on.

If your current tax rate is 24%, for instance, then it makes sense for you to contribute enough to tax-deferred assets so that during retirement, your withdrawals are taxed at a lower rate than your current 24% which, assuming 4% withdrawals, is $4,725,000 ($165k + $24k). Only once you are on track to have that level of assets does it make good tax sense to start contributing to Roth accounts.

Of course, if Roth is all you have, then you don't have a choice in the matter.
2m2037 wrote:
Mon May 14, 2018 5:46 pm
I'm thinking of:
1. contributing $18.5K to the Traditional 401k account,
2. find out how much the employer match is, and
3. contributing the remaining into a Roth 401K to either.

For example if the employer match amounts to $6.5K, then I would be able to put $35K into the Roth 401K account, instead of into my taxable Vanguard account.

Assuming our emergency fund is full, and we have enough left for monthly expenditure, but nothing left for a taxable Vanguard account.

Good idea... or bad? We are in our late 20s/early 30s.
It depends on what your current balance of tax-deferred assets is. At your age, it's unlikely that you have significant tax-deferred assets. What's your current marginal tax rate?
Ah, I think I get what you mean. In essence what you are saying is to make sure I pay a lower tax rate when I withdraw it in the future. If I'm going to pay the same tax rate of 24% now and 32% when I retire, then I'm better off not making contributions at all. Is that it?

To your second point, we only have around $12K in my traditional 401K and $0 in hers. We have been dumping everything we can in our taxable Vanguard account - nearly $90K there. We were shooting to put in another $100K by end of this year but now not sure if we should be channeling those funds to a 401K/Roth/both instead. We are at in the 24% bracket, as you correctly guessed. :)

2m2037
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by 2m2037 » Mon May 14, 2018 6:08 pm

Bacchus01 wrote:
Mon May 14, 2018 5:57 pm
You are very confused. You cannot put that all directly in a Roth 401k. The $18.5 limit applies to Roth and regular pre-tax 401k. There is no real reason to do after-tax 401k unless you can mega backdoor.
I'm sorry, I meant an after-tax 401K. What do you mean by "unless you can mega backdoor", can't everyone mega backdoor? Please bear with me, I'm truly figuring things out with the entire 401K system.

Edit: I think the terms I meant to use was contribute to a 415 account (is that the correct term) and roll it into a Roth IRA.

metrunt
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by metrunt » Mon May 14, 2018 6:17 pm

2m2037 wrote:
Mon May 14, 2018 6:08 pm
can't everyone mega backdoor?
Nope. Your 401k plan needs to have a couple of unusual features, primarily the ability to contribute post-tax and to make in-service distributions.

There's a handful of good blog articles on this that explain it better than we can on these forums.

This is one: https://thecollegeinvestor.com/17561/un ... -roth-ira/

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willthrill81
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by willthrill81 » Mon May 14, 2018 6:25 pm

2m2037 wrote:
Mon May 14, 2018 6:07 pm
willthrill81 wrote:
Mon May 14, 2018 5:52 pm
2m2037 wrote:
Mon May 14, 2018 5:41 pm
willthrill81 wrote:
Mon May 14, 2018 5:29 pm
Do you have access to a traditional 401k as well? Are you eligible to deduct traditional IRA contributions?

Remember that if one is making 4% withdrawals, a married filing jointly couple needs $600k in assets just to cover the 2018 standard deduction of $24k. If possible, all of that initial income should be drawn from tax-deferred assets since it won't be taxed at the Federal level at all. This means that no Federal income tax is paid on the money going in and none is paid on the money coming out either (up to $24k annually of course). Granted, Social Security benefits complicate the situation and do add more weight to the Roth side of the balance, but the point remains.
I have access to traditional 401K, but we are over the income limit for IRA contributions. I don't understand your second paragraph on4% withdrawals and standard deductions... are you talking about when we are retired and living off 4% withdrawal of our net assets each year?
Yes. When you are retired, not all of your traditional 401k withdrawals would be taxed at the same rate because the tax rates are progressive. For a married filing jointly couple, the first $24k of annual income is not subject to any Federal income because that's the amount of the standard deduction for 2018 and forward. If you were using 4% withdrawals from your portfolio for income, this means that the first $600k of your assets should be in tax-deferred assets (not taxed going in or coming out). The next $19,050 of income is taxed at 10%, and after that, the next $58,350 is taxed at 12%, and so on.

If your current tax rate is 24%, for instance, then it makes sense for you to contribute enough to tax-deferred assets so that during retirement, your withdrawals are taxed at a lower rate than your current 24% which, assuming 4% withdrawals, is $4,725,000 ($165k + $24k). Only once you are on track to have that level of assets does it make good tax sense to start contributing to Roth accounts.

Of course, if Roth is all you have, then you don't have a choice in the matter.
2m2037 wrote:
Mon May 14, 2018 5:46 pm
I'm thinking of:
1. contributing $18.5K to the Traditional 401k account,
2. find out how much the employer match is, and
3. contributing the remaining into a Roth 401K to either.

For example if the employer match amounts to $6.5K, then I would be able to put $35K into the Roth 401K account, instead of into my taxable Vanguard account.

Assuming our emergency fund is full, and we have enough left for monthly expenditure, but nothing left for a taxable Vanguard account.

Good idea... or bad? We are in our late 20s/early 30s.
It depends on what your current balance of tax-deferred assets is. At your age, it's unlikely that you have significant tax-deferred assets. What's your current marginal tax rate?
Ah, I think I get what you mean. In essence what you are saying is to make sure I pay a lower tax rate when I withdraw it in the future. If I'm going to pay the same tax rate of 24% now and 32% when I retire, then I'm better off not making contributions at all. Is that it?
Remember that you need $600k of assets to produce enough income to 'fill up' the '0% tax bracket' (i.e. standard deduction for MFJ). So now we need to determine how much you need to contribute to get that much. Since you have about $12k in a traditional 401k now, if we assume a 5% real (after inflation) return for 30 years (rough estimate; I don't like estimates that go up to 65 since you might be forced to retire early or may need more than you're currently thinking), you would need to contribute about $690 monthly to reach $600k in today's dollars.

We do the same for additional brackets as well. The next bracket is 10%, and this applies to the next $19,050 of income. Assuming a 4% withdrawal rate, that comes to $476,250 of needed assets. Using the same process and assumptions as above with the exception that your starting capital here is zero, you would need to contribute about $600 monthly to get that $476k of assets in 30 years. This would be in addition to the $690 needed monthly to fill up the 0% bracket. And so it goes for higher brackets. You would need another $1,458,750 to fill up the 12% bracket, for instance.

This means that in today's dollars, you'll need almost $1.1 million of assets to produce enough income just to fill up to the top of the 10% bracket. That alone comes to $19,350 annually (including both yours and your employer's contributions).
2m2037 wrote:
Mon May 14, 2018 6:07 pm
To your second point, we only have around $12K in my traditional 401K and $0 in hers. We have been dumping everything we can in our taxable Vanguard account - nearly $90K there. We were shooting to put in another $100K by end of this year but now not sure if we should be channeling those funds to a 401K/Roth/both instead. We are at in the 24% bracket, as you correctly guessed. :)
Yes, I'd say that at a bare minimum, you should be ensuring that you have traditional 401k contributions of $19,350 and likely significantly more. At this point, it's probably optimal for you to max out your traditional 401k contributions and invest anything additional in Roth IRAs since that will be better than a brokerage (i.e. taxable) account (assuming you're eligible for direct Roth contributions; if not, you can do a backdoor Roth IRA).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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jhfenton
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by jhfenton » Mon May 14, 2018 6:41 pm

In 25+ years of working, neither my wife nor I have ever had a 401(k) that permitted after-tax contributions.

So no.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by whodidntante » Mon May 14, 2018 6:55 pm

My company has a safe harbor plan and just this year added after tax contributions with in service rollovers. But then I found out that as an HCE, my after tax contributions will likely be returned to me next year. I plan to shovel a bunch of money in during Q4 and see what happens.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by Spirit Rider » Mon May 14, 2018 6:59 pm

For 2018 there is an $18.5K employee elective contribution limit. That is a combined limit of both traditional deferrals and designated Roth contributions. For 2018 there is a $55K annual addition limit of employee + employer contributions.

The only way to increase contributions beyond employee elective contributions and employer contributions is by making employee after-tax contributions, not to be confused with Roth designated contributions. This a non-standard 401k plan feature that the employer must proactively select. Without an ability to convert these after-tax contributions to full tax-free status, all earnings are pre-tax.

There are two additional optional plan features to resolve this. A 401k plan can offer an In-plan Roth Rollover (IRR) and/or in-service rollover. The former allows you to increase your Roth 401k account space and the latter allows you to perform the Mega Backdoor Roth.

The bottom line is that without after-tax contributions, IRRs and/or in-service rollovers, you can not have total 401k contributions > employee elective contributions + employer contributions.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by Spirit Rider » Mon May 14, 2018 7:09 pm

whodidntante wrote:
Mon May 14, 2018 6:55 pm
My company has a safe harbor plan and just this year added after tax contributions with in service rollovers. But then I found out that as an HCE, my after tax contributions will likely be returned to me next year. I plan to shovel a bunch of money in during Q4 and see what happens.
Your plan will be subject to ACP testing, which is somewhat complex. The most likely result being the HCE's after-tax contribution % limit being 2% above the average non-HCE after-tax contribution %.

diy60
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by diy60 » Mon May 14, 2018 7:27 pm

Spirit Rider wrote:
Mon May 14, 2018 6:59 pm
For 2018 there is an $18.5K employee elective contribution limit. That is a combined limit of both traditional deferrals and designated Roth contributions. For 2018 there is a $55K annual addition limit of employee + employer contributions.

The only way to increase contributions beyond employee elective contributions and employer contributions is by making employee after-tax contributions, not to be confused with Roth designated contributions. This a non-standard 401k plan feature that the employer must proactively select. Without an ability to convert these after-tax contributions to full tax-free status, all earnings are pre-tax.

There are two additional optional plan features to resolve this. A 401k plan can offer an In-plan Roth Rollover (IRR) and/or in-service rollover. The former allows you to increase your Roth 401k account space and the latter allows you to perform the Mega Backdoor Roth.

The bottom line is that without after-tax contributions, IRRs and/or in-service rollovers, you can not have total 401k contributions > employee elective contributions + employer contributions.
This sir/madam, is a work of art and should be pinned as required reading for anyone inquiring about 401K limits and after tax 401K contribution strategy. It took me about 6 months of reading Bogleheads forum to piece together this information, and, it wasn't until about 2 years before I retired that I learned my MegaCorp employer had all of these features.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by jumppilot » Mon May 14, 2018 7:34 pm

I contribute the max pre-tax then contribute after tax. At the end of the year I convert it to Roth.

Goal is to hit 415(c) limits every year.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by NancyABQ » Mon May 14, 2018 8:25 pm

My previous employer allowed post-tax contributions. They also had a 401K match on a per-paycheck basis (I think it was 2/3rds of first 6% or something) without any fancy catch-up provisions, etc. So if you maxed your 401K early and stopped contributing for the year, you wouldn't get the full match. But if you just kept contributing at least the 6%, using the post-tax contributions, then you could get the full match.

I used to take advantage of the post-tax to not have to worry about calculating my contributions to the last penny to get the full match, but it never occurred to me to contribute any extra beyond that. I don't know if they allowed in-service rollovers or not. If I still worked there, I would certainly look into it.

After I left, I rolled that post-tax bit into my Roth IRA. The growth on the post-tax bit went into my rollover IRA. In retrospect I wish I had made more post-tax contributions, especially in the last year or so, when I was pretty sure I would be leaving the company in the short term.

Current employer has no match, and no extra post-tax contributions. If you reach the 18.5K limit early in the year, they automatically stop taking out any more contributions from the paycheck. So there is no way to contribute more than $18.5k/year.

Really, the best thing to do is check with your employer about how things are setup.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by ssquared87 » Mon May 14, 2018 8:34 pm

jhfenton wrote:
Mon May 14, 2018 6:41 pm
In 25+ years of working, neither my wife nor I have ever had a 401(k) that permitted after-tax contributions.

So no.
In 9 years of working, 3 out of 3 of my jobs had it. Until recently, I didn't have the level of income to take advantage of it.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by bayview » Mon May 14, 2018 9:35 pm

Slacker wrote:
Mon May 14, 2018 6:05 pm
We do not go beyond 18.5K in our 401K(s).
1. Employer doesn't allow it.
2. Employer doesn't have in-service roll over.
3. OPM/TSP will tell you that they just follow the IRS rules for 401K, but clearly they do not follow the entirety of the rules.
Yep. Cheer up, eventually you can hit $24k/year!

Frankly, we’ve never had the income to save significantly more. This is one of those threads where a popcorn-eating emoji would be useful.
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by yogesh » Mon May 14, 2018 9:49 pm

I max out both pretax and after-tax 401k with payroll deductions as if it’s not my money to spend today. Like withheld taxes at paycheck ...
- Pretax 401K: $18,500 IRS contribution limit
- Or Roth 401K: $18,500 contribution limit
- Employer match: x% of employee contributions
- After-tax: $25,000 with quarterly inplan rollover
Tremendously helpful in increasing tax advantaged space!
Emergency: FDIC | Taxable: VT | Retirement: TR2040

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by Spirit Rider » Mon May 14, 2018 9:52 pm

Slacker wrote:
Mon May 14, 2018 6:05 pm
3. OPM/TSP will tell you that they just follow the IRS rules for 401K, but clearly they do not follow the entirety of the rules.
They do follow all the IRS rules. They are simply choosing not to support an optional feature. Optional means just that, a plan sponsor has the option on whether to support it or not.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by jacoavlu » Mon May 14, 2018 10:37 pm

whodidntante wrote:
Mon May 14, 2018 6:55 pm
My company has a safe harbor plan and just this year added after tax contributions with in service rollovers. But then I found out that as an HCE, my after tax contributions will likely be returned to me next year. I plan to shovel a bunch of money in during Q4 and see what happens.
Similar situation here. I inquired to our TPA about after tax contributions (can’t recall if our plan had it or not, but I could get it changed if I wanted) but seemed it would be pointless, plan testing would fail if I contributed after tax as an HCE but our non HCE did not. At least that’s how I generally remember it.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by marcopolo » Mon May 14, 2018 10:43 pm

jacoavlu wrote:
Mon May 14, 2018 10:37 pm
whodidntante wrote:
Mon May 14, 2018 6:55 pm
My company has a safe harbor plan and just this year added after tax contributions with in service rollovers. But then I found out that as an HCE, my after tax contributions will likely be returned to me next year. I plan to shovel a bunch of money in during Q4 and see what happens.
Similar situation here. I inquired to our TPA about after tax contributions (can’t recall if our plan had it or not, but I could get it changed if I wanted) but seemed it would be pointless, plan testing would fail if I contributed after tax as an HCE but our non HCE did not. At least that’s how I generally remember it.
It may still be useful if your employer continues to match for after tax contributions. I had that situation for a number of years. Company matched 100% of employee contributions. So, for $55k limit, $27.5k from employee, $27.5k from employer. Some years, the plan failed fairness test and some of the money was returned, so we lost the tax-advantages, but we still got the matching money, which would have been a lot less if no after-tax contributions were made.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by jacoavlu » Mon May 14, 2018 11:12 pm

^^ I am the employee and the employer-owner

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by IlliniDave » Tue May 15, 2018 6:49 am

I'm late to the game on this one. But my employer does allow after-tax contributions above the annual limits, and I've accumulated a small amount from slight over contributions (our plan you can only specify contributions in integer percents).

The plan does not a appear to allow for in-plan conversions (though it does have Roth 401k option). But it does appear to allow for rollovers and it appears the after-tax segment of the account can be rolled over separately. So it seems like I could rollover after tax to an TIRA then convert the TIRA to Roth. Flaws?

How does one determine if one is an HCE (seems like it's a relative thing)? I work for a large megacorp and get paid well but appreciably less than the upper half of management who are an order of magnitude below the corporate-level people. I don't want to wind up "in trouble" (i.e., headaches) with the IRS over having money pulled out of the plan and given back to me.

I wish I'd have figured out all of this back when I got wise to baby backdoor Roths. I've only got a couple years left to give this a spin if it's doable.
Don't do something. Just stand there!

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by Soon2BXProgrammer » Tue May 15, 2018 7:23 am

IlliniDave wrote:
Tue May 15, 2018 6:49 am
I'm late to the game on this one. But my employer does allow after-tax contributions above the annual limits, and I've accumulated a small amount from slight over contributions (our plan you can only specify contributions in integer percents).

The plan does not a appear to allow for in-plan conversions (though it does have Roth 401k option). But it does appear to allow for rollovers and it appears the after-tax segment of the account can be rolled over separately. So it seems like I could rollover after tax to an TIRA then convert the TIRA to Roth. Flaws?

How does one determine if one is an HCE (seems like it's a relative thing)? I work for a large megacorp and get paid well but appreciably less than the upper half of management who are an order of magnitude below the corporate-level people. I don't want to wind up "in trouble" (i.e., headaches) with the IRS over having money pulled out of the plan and given back to me.

I wish I'd have figured out all of this back when I got wise to baby backdoor Roths. I've only got a couple years left to give this a spin if it's doable.
https://www.irs.gov/newsroom/irs-announ ... 0-for-2018
The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $120,000.


the HCE status only if your company has a track record of needing to return contributions for the HCE... at my megacorp, that never happens.. in fact we have a top hat "non qualified" plan that kicks in after the Section 415(c)(1)(A) $55,000 limit.

if your risk adverse you might want to ask an administrator if they ever fail any of their testing for HCE

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by IlliniDave » Tue May 15, 2018 7:36 am

Soon2BXProgrammer wrote:
Tue May 15, 2018 7:23 am
IlliniDave wrote:
Tue May 15, 2018 6:49 am
I'm late to the game on this one. But my employer does allow after-tax contributions above the annual limits, and I've accumulated a small amount from slight over contributions (our plan you can only specify contributions in integer percents).

The plan does not a appear to allow for in-plan conversions (though it does have Roth 401k option). But it does appear to allow for rollovers and it appears the after-tax segment of the account can be rolled over separately. So it seems like I could rollover after tax to an TIRA then convert the TIRA to Roth. Flaws?

How does one determine if one is an HCE (seems like it's a relative thing)? I work for a large megacorp and get paid well but appreciably less than the upper half of management who are an order of magnitude below the corporate-level people. I don't want to wind up "in trouble" (i.e., headaches) with the IRS over having money pulled out of the plan and given back to me.

I wish I'd have figured out all of this back when I got wise to baby backdoor Roths. I've only got a couple years left to give this a spin if it's doable.
https://www.irs.gov/newsroom/irs-announ ... 0-for-2018
The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $120,000.


the HCE status only if your company has a track record of needing to return contributions for the HCE... at my megacorp, that never happens.. in fact we have a top hat "non qualified" plan that kicks in after the Section 415(c)(1)(A) $55,000 limit.

if your risk adverse you might want to ask an administrator if they ever fail any of their testing for HCE
I've been blissfully ignorant of the whole HCE thing. I've probably been an HCE for the last 10 years and haven't ever had my pre-tax contributions curbed/returned, nor any of the occasional after-tax contributions I've put in. So maybe that's reason to be hopeful that my employer's plan is in pretty good shape relative to whatever testing gets done?
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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by oldcomputerguy » Tue May 15, 2018 7:43 am

2m2037 wrote:
Mon May 14, 2018 5:06 pm
We just realized that the 401k contribution limit is $55K. We always thought it was $18.5K, but just found out that $18.5K is the elective deferral portion but we can choose to contribute to it on a post-tax basis. A bit late to the game... :oops:

Theoretically, if we are able to, should we max out the $55K in a Roth 401K? My only concern is liquidity. Do any of you share this concern, and if so, how and where do you draw the line? 90% of budgeted capital investments into the Roth 401K and 10% into taxable accounts?
I'm not 100% sure, but from what I read on the irs.gov web site, I believe that $55,000 annual limit includes any employee match. If that's the case, you cannot contribute $55,000 of your own money if your employer is matching any portion of the contribution.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by infotrader » Tue May 15, 2018 9:26 am

I started doing this the same day I learned the trick at BH last year, and I am on my to max out my after tax 401k this year.
I call Fidelity after each pay period to rollover the whole balance to a rIRA. There are no tax consequences. All the contribution money showed up in my last year's W2 as after tax income.
After reaching the max, I will start to max out my two tax deferred plans. This is not my priority.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by Spirit Rider » Tue May 15, 2018 10:28 am

Soon2BXProgrammer wrote:
Tue May 15, 2018 7:23 am
IlliniDave wrote:
Tue May 15, 2018 6:49 am
The plan does not a appear to allow for in-plan conversions (though it does have Roth 401k option). But it does appear to allow for rollovers and it appears the after-tax segment of the account can be rolled over separately. So it seems like I could rollover after tax to an TIRA then convert the TIRA to Roth. Flaws?
You may not want to rollover both the after-tax contributions and earnings to a tIRA. You will then have both pre-tax and non-deductible assets causing a prorata treatment of any Roth conversion including from a Backdoor Roth. However, you could then rollover only the pre-tax assets to your 401k if they accept rollovers, but there are two other options.

If the after-tax earnings are reasonable, rollover both the after-tax contributions and pre-tax earnings to a Roth IRA. The pre-tax earnings will be taxable, but are never are in the tIRA subject to a prorata Roth conversion, which makes your Backdoor Roth cleaner.

Otherwise, you can do a split rollover. The after-tax contributions to a rIRA and the pre-tax earnings directly to a tIRA. Like with your option, you could then rollover only the pre-tax assets to your 401k if they accept rollovers. This is more steps, but the pre-tax earnings can be directed to a rollover tIRA, which is a requirement of many plans to accept tIRA rollovers.
How does one determine if one is an HCE (seems like it's a relative thing)? I work for a large megacorp and get paid well but appreciably less than the upper half of management who are an order of magnitude below the corporate-level people. I don't want to wind up "in trouble" (i.e., headaches) with the IRS over having money pulled out of the plan and given back to me.
https://www.irs.gov/newsroom/irs-announ ... 0-for-2018
The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $120,000.
If your company has > 20% of employees with compensation > $120K, they can elect to treat only the top 20% of employees as HCEs. This has the effect of raising the HSA limit. I once worked at a startup where eight (8) out of twenty-five (25) employees were VPs or above. Using the top 20%, our "effective" HCE limit was > $200K.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by 2m2037 » Tue May 15, 2018 10:54 am

metrunt wrote:
Mon May 14, 2018 6:17 pm
2m2037 wrote:
Mon May 14, 2018 6:08 pm
can't everyone mega backdoor?
Nope. Your 401k plan needs to have a couple of unusual features, primarily the ability to contribute post-tax and to make in-service distributions.

There's a handful of good blog articles on this that explain it better than we can on these forums.

This is one: https://thecollegeinvestor.com/17561/un ... -roth-ira/
Thank you!

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by 2m2037 » Tue May 15, 2018 10:58 am

willthrill81 wrote:
Mon May 14, 2018 6:25 pm
2m2037 wrote:
Mon May 14, 2018 6:07 pm
willthrill81 wrote:
Mon May 14, 2018 5:52 pm
2m2037 wrote:
Mon May 14, 2018 5:41 pm
willthrill81 wrote:
Mon May 14, 2018 5:29 pm
Do you have access to a traditional 401k as well? Are you eligible to deduct traditional IRA contributions?

Remember that if one is making 4% withdrawals, a married filing jointly couple needs $600k in assets just to cover the 2018 standard deduction of $24k. If possible, all of that initial income should be drawn from tax-deferred assets since it won't be taxed at the Federal level at all. This means that no Federal income tax is paid on the money going in and none is paid on the money coming out either (up to $24k annually of course). Granted, Social Security benefits complicate the situation and do add more weight to the Roth side of the balance, but the point remains.
I have access to traditional 401K, but we are over the income limit for IRA contributions. I don't understand your second paragraph on4% withdrawals and standard deductions... are you talking about when we are retired and living off 4% withdrawal of our net assets each year?
Yes. When you are retired, not all of your traditional 401k withdrawals would be taxed at the same rate because the tax rates are progressive. For a married filing jointly couple, the first $24k of annual income is not subject to any Federal income because that's the amount of the standard deduction for 2018 and forward. If you were using 4% withdrawals from your portfolio for income, this means that the first $600k of your assets should be in tax-deferred assets (not taxed going in or coming out). The next $19,050 of income is taxed at 10%, and after that, the next $58,350 is taxed at 12%, and so on.

If your current tax rate is 24%, for instance, then it makes sense for you to contribute enough to tax-deferred assets so that during retirement, your withdrawals are taxed at a lower rate than your current 24% which, assuming 4% withdrawals, is $4,725,000 ($165k + $24k). Only once you are on track to have that level of assets does it make good tax sense to start contributing to Roth accounts.

Of course, if Roth is all you have, then you don't have a choice in the matter.
2m2037 wrote:
Mon May 14, 2018 5:46 pm
I'm thinking of:
1. contributing $18.5K to the Traditional 401k account,
2. find out how much the employer match is, and
3. contributing the remaining into a Roth 401K to either.

For example if the employer match amounts to $6.5K, then I would be able to put $35K into the Roth 401K account, instead of into my taxable Vanguard account.

Assuming our emergency fund is full, and we have enough left for monthly expenditure, but nothing left for a taxable Vanguard account.

Good idea... or bad? We are in our late 20s/early 30s.
It depends on what your current balance of tax-deferred assets is. At your age, it's unlikely that you have significant tax-deferred assets. What's your current marginal tax rate?
Ah, I think I get what you mean. In essence what you are saying is to make sure I pay a lower tax rate when I withdraw it in the future. If I'm going to pay the same tax rate of 24% now and 32% when I retire, then I'm better off not making contributions at all. Is that it?
Remember that you need $600k of assets to produce enough income to 'fill up' the '0% tax bracket' (i.e. standard deduction for MFJ). So now we need to determine how much you need to contribute to get that much. Since you have about $12k in a traditional 401k now, if we assume a 5% real (after inflation) return for 30 years (rough estimate; I don't like estimates that go up to 65 since you might be forced to retire early or may need more than you're currently thinking), you would need to contribute about $690 monthly to reach $600k in today's dollars.

We do the same for additional brackets as well. The next bracket is 10%, and this applies to the next $19,050 of income. Assuming a 4% withdrawal rate, that comes to $476,250 of needed assets. Using the same process and assumptions as above with the exception that your starting capital here is zero, you would need to contribute about $600 monthly to get that $476k of assets in 30 years. This would be in addition to the $690 needed monthly to fill up the 0% bracket. And so it goes for higher brackets. You would need another $1,458,750 to fill up the 12% bracket, for instance.

This means that in today's dollars, you'll need almost $1.1 million of assets to produce enough income just to fill up to the top of the 10% bracket. That alone comes to $19,350 annually (including both yours and your employer's contributions).
2m2037 wrote:
Mon May 14, 2018 6:07 pm
To your second point, we only have around $12K in my traditional 401K and $0 in hers. We have been dumping everything we can in our taxable Vanguard account - nearly $90K there. We were shooting to put in another $100K by end of this year but now not sure if we should be channeling those funds to a 401K/Roth/both instead. We are at in the 24% bracket, as you correctly guessed. :)
Yes, I'd say that at a bare minimum, you should be ensuring that you have traditional 401k contributions of $19,350 and likely significantly more. At this point, it's probably optimal for you to max out your traditional 401k contributions and invest anything additional in Roth IRAs since that will be better than a brokerage (i.e. taxable) account (assuming you're eligible for direct Roth contributions; if not, you can do a backdoor Roth IRA).
Thank you. I will need a couple more hours to follow your math and make sure I completely understand it, but I think I get the general gist of what you mean and I appreciate your time taken writing all these out for my benefit!

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by 2m2037 » Tue May 15, 2018 11:01 am

Spirit Rider wrote:
Mon May 14, 2018 6:59 pm
For 2018 there is an $18.5K employee elective contribution limit. That is a combined limit of both traditional deferrals and designated Roth contributions. For 2018 there is a $55K annual addition limit of employee + employer contributions.

The only way to increase contributions beyond employee elective contributions and employer contributions is by making employee after-tax contributions, not to be confused with Roth designated contributions. This a non-standard 401k plan feature that the employer must proactively select. Without an ability to convert these after-tax contributions to full tax-free status, all earnings are pre-tax.

There are two additional optional plan features to resolve this. A 401k plan can offer an In-plan Roth Rollover (IRR) and/or in-service rollover. The former allows you to increase your Roth 401k account space and the latter allows you to perform the Mega Backdoor Roth.

The bottom line is that without after-tax contributions, IRRs and/or in-service rollovers, you can not have total 401k contributions > employee elective contributions + employer contributions.
This makes a lot of sense; and it's easy to understand from the way you've articulated it. :beer Great summary and I'll be reaching out to my company's HR person to see if we have these options.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by Stormbringer » Tue May 15, 2018 11:19 am

2m2037 wrote:
Mon May 14, 2018 5:06 pm
2018 401k limit is $55K - do you max it out? Why/why not?
I do! I started in 2012, and it has really supercharged my retirement portfolio.

Being self-employed with adequate income makes it pretty straight-forward. Since the employer portion is limited to 25% of compensation, it forces me to take a higher salary than I otherwise would, so there are some additional payroll taxes. Overall though it really brings down my tax bill and puts me in a good position for retirement.

I did not go the Roth 401(k) route, as Schwab doesn't offer that but also because our tax bracket would make it painful. We do backdoor Roth-IRAs though.
"Compound interest is the most powerful force in the universe." - Albert Einstein

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by Earl Lemongrab » Tue May 15, 2018 1:06 pm

When I was working at Megacorp, they offered after-tax contribution and unlimited in-service rollovers of those amounts to IRAs. When I found out about Mega Backdoor Roth, I starting putting in as much as I could.

Unfortunately, they had a limit on the amount you could contribute each month. The last few years I was there it was 30% of salary each pay period. So the max I could put in at the peak was about 30k plus the catch-up amount. Say 36k total. With matching about 42k. So I never got that close to the limit.

What I would do is set my regular contribution to the max. Then when the employee deferral limit was hit, the plan would automatically switch to after-tax with continued matching. This would collect the after-tax at the end of the year. I'd then roll over in January with minimal earnings.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by 2m2037 » Tue May 15, 2018 1:38 pm

2m2037 wrote:
Tue May 15, 2018 11:01 am
Spirit Rider wrote:
Mon May 14, 2018 6:59 pm
For 2018 there is an $18.5K employee elective contribution limit. That is a combined limit of both traditional deferrals and designated Roth contributions. For 2018 there is a $55K annual addition limit of employee + employer contributions.

The only way to increase contributions beyond employee elective contributions and employer contributions is by making employee after-tax contributions, not to be confused with Roth designated contributions. This a non-standard 401k plan feature that the employer must proactively select. Without an ability to convert these after-tax contributions to full tax-free status, all earnings are pre-tax.

There are two additional optional plan features to resolve this. A 401k plan can offer an In-plan Roth Rollover (IRR) and/or in-service rollover. The former allows you to increase your Roth 401k account space and the latter allows you to perform the Mega Backdoor Roth.

The bottom line is that without after-tax contributions, IRRs and/or in-service rollovers, you can not have total 401k contributions > employee elective contributions + employer contributions.
This makes a lot of sense; and it's easy to understand from the way you've articulated it. :beer Great summary and I'll be reaching out to my company's HR person to see if we have these options.
So I just asked about the after-tax contribution option (not Roth) and I don't have it at my company, but my wife does at hers. And at my wife's company, they have the ability to auto-deduct from payroll directly into the after-tax contribution, and once the contributions show up, immediately roll those over into a Roth IRA. :D

So it would be auto-contributing every fortnight, rollover into Roth IRA happens the day after each fortnightly contribution, so minimal time for growth.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by Spirit Rider » Tue May 15, 2018 3:07 pm

2m2037 wrote:
Tue May 15, 2018 1:38 pm
So I just asked about the after-tax contribution option (not Roth) and I don't have it at my company, but my wife does at hers. And at my wife's company, they have the ability to auto-deduct from payroll directly into the after-tax contribution, and once the contributions show up, immediately roll those over into a Roth IRA. :D

So it would be auto-contributing every fortnight, rollover into Roth IRA happens the day after each fortnightly contribution, so minimal time for growth.
Double check that there are no rollover frequency restrictions. While some plans have no restrictions, many limit rollovers to once per quarter or even year.

Even if there are no restrictions. Rolling over every two weeks might get old unless your 401k and Roth IRA are at the same custodian. It wouldn't be the worst thing to rollover every X pay periods.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by Grogs » Tue May 15, 2018 7:05 pm

I'm not at a point yet where I can contribute the 51k or so I would need to hit 55k after the company match. For the past couple of years, I've been doing 18k to the 401k pretax, then $5500 to a Roth IRA and somewhere around $15k to a regular brokerage account. I may rethink that strategy going forward based on what I've read in this thread and changes that are coming down the pipe in the next few years. I'm an HCE for the first time this year, and probably in a couple of years I'll start reaching the beginning of the Roth IRA phaseout. When that starts happening, I'll have to pursue either a standard or mega backdoor Roth if those options are still available.

I looked over the summary plan description for our 401k. The restrictions for HCEs aren't particularly onerous. We're limited to a max. of 16% per pay period, which would put me just a bit over the $18.5k pretax limit. That restriction is per contribution type though, so I could potentially contribute 16% to pretax and another 16% to after tax from each paycheck. Anything beyond the $18.5k pretax limit also shifts to after tax. I looked at the summary plan description and it states I can do either a direct (i.e., check to Vanguard) or indirect withdraw of the after tax portion while I'm still working. Is that good enough for the mega backdoor Roth, or does there need to be some specific language in the plan document? We're also limited to a max. of two distributions per year. I would probably just contribute for a year and transfer it out the following January or something like that for simplicity.

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Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by Earl Lemongrab » Tue May 15, 2018 7:20 pm

Grogs wrote:
Tue May 15, 2018 7:05 pm
I'm not at a point yet where I can contribute the 51k or so I would need to hit 55k after the company match.
The 55k includes all of your contributions as well. So if you're putting in 18.5k and getting 4k match, then the remaining is 32.5k.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

Grogs
Posts: 432
Joined: Tue Mar 24, 2015 4:55 pm

Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by Grogs » Tue May 15, 2018 7:33 pm

Earl Lemongrab wrote:
Tue May 15, 2018 7:20 pm
Grogs wrote:
Tue May 15, 2018 7:05 pm
I'm not at a point yet where I can contribute the 51k or so I would need to hit 55k after the company match.
The 55k includes all of your contributions as well. So if you're putting in 18.5k and getting 4k match, then the remaining is 32.5k.
Understood. I was just saying that right now my total annual investment is 18.5 + 5.5 + 15 = 39k, which is short of the 51k I would need to max the 401k even if it was all going there.

Dottie57
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Joined: Thu May 19, 2016 5:43 pm

Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by Dottie57 » Tue May 15, 2018 8:24 pm

2m2037 wrote:
Mon May 14, 2018 5:46 pm
I'm thinking of:
1. contributing $18.5K to the Traditional 401k account,
2. find out how much the employer match is, and
3. contributing the remaining into a Roth 401K to either.

For example if the employer match amounts to $6.5K, then I would be able to put $35K into the Roth 401K account, instead of into my taxable Vanguard account.

Assuming our emergency fund is full, and we have enough left for monthly expenditure, but nothing left for a taxable Vanguard account.

Good idea... or bad? We are in our late 20s/early 30s.
Your employer 401 k plan has to allow the contribution over 18500 - It is not a given.

If the plan allows contributions by employee over 18.5k , the amount is not tax deductible.

gundlached
Posts: 117
Joined: Wed Nov 18, 2015 12:45 pm

Re: 2018 401k limit is $55K - do you max it out? Why/why not?

Post by gundlached » Tue May 15, 2018 8:57 pm

marcopolo wrote:
Mon May 14, 2018 5:26 pm
2m2037 wrote:
Mon May 14, 2018 5:06 pm
We just realized that the 401k contribution limit is $55K. We always thought it was $18.5K, but just found out that $18.5K is the elective deferral portion but we can choose to contribute to it on a post-tax basis. A bit late to the game... :oops:

Theoretically, if we are able to, should we max out the $55K in a Roth 401K? My only concern is liquidity. Do any of you share this concern, and if so, how and where do you draw the line? 90% of budgeted capital investments into the Roth 401K and 10% into taxable accounts?
While i was working, i maxed out (the cap is adjusted a little bit each year) every year, and then transferred the after-tax contributions to a Roth IRA.
Your plan has to allow something called an "in-service roll out" to be able to do this, so check with the plan administrator. Once it is in the Roth IRA, the same rules apply about accessing principle in Roth (penalty free after 5 years).
I think you have posted confusing info about the rules regarding accessing principal in a roth--contributions can always be accessed penalty and tax free. The 5 year rule applies to withdrawing earnings tax free.

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