new 401(k) limits announced

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
User avatar
samsoes
Posts: 603
Joined: Tue Mar 05, 2013 9:12 am

new 401(k) limits announced

Post by samsoes » Thu Oct 19, 2017 7:04 pm

Looks like it's official:

2018 401(k) contribution is increasing to $18,500 (+$500). :moneybag Catch-up ($6000) and IRA contribution limits ($5500 + $1000 catch-up) remain unchanged.

https://www.fool.com/retirement/2017/10 ... -is-i.aspx

Teaser:

For the 2018 tax year, the IRS has increased the employee 401(k) contribution limit to $18,500 to keep up with the rising cost of living. This means savers who want to max out their retirement savings have the ability to contribute an additional $500 to their 401(k) account, which also translates to a greater tax break...
"Happiness Is Not My Companion" - Gen. Gouverneur K. Warren. (Avatar is the statue of Gen. Warren at Little Round Top @ Gettysburg National Military Park.)

CppCoder
Posts: 739
Joined: Sat Jan 23, 2016 9:16 pm

Re: new 401(k) limits announced

Post by CppCoder » Thu Oct 19, 2017 7:52 pm

For those who prefer IRS links:

https://www.irs.gov/newsroom/irs-announ ... 0-for-2018

Of importance to those of us who do a mega backdoor Roth, the overall 401k limit is rising from $54,000 to $55,000 (+ catch-up), and the compensation limit is rising from $270,000 to $275,000.

Engineer250
Posts: 930
Joined: Wed Jun 22, 2016 1:41 pm

Re: new 401(k) limits announced

Post by Engineer250 » Thu Oct 19, 2017 10:40 pm

Just in time, hoping to max out my 401k for the first time next year!
Where the tides of fortune take us, no man can know.

Prov227
Posts: 31
Joined: Thu Apr 03, 2014 11:13 pm
Location: Milwaukee, WI

Re: new 401(k) limits announced

Post by Prov227 » Thu Oct 19, 2017 11:17 pm

Why couldn't they just make it $18,600 instead? That would be nice and divisible by 24 (or 12) for payroll contribution. At the current limit, it's an easy $750 bi-monthly ($1500 monthly) to max out. For 2018, it will be $770.83333 bi-monthly ($1541.66667 monthly).

Hitting the exact limit just got messier and more of a hassle? I assume it will require making one contribution different from the others to get the numbers to line up? Or is there a better way?
"...and the borrower is slave to the lender." -Proverbs 22:7

User avatar
ofcmetz
Posts: 2264
Joined: Tue Feb 08, 2011 8:09 pm
Location: Louisiana

Re: new 401(k) limits announced

Post by ofcmetz » Fri Oct 20, 2017 12:38 am

Nice! So I can put $500 more in both my 403B and 457B.
Never underestimate the power of the force of low cost index funds.

crumbone
Posts: 74
Joined: Thu Oct 12, 2017 11:50 pm

Re: new 401(k) limits announced

Post by crumbone » Fri Oct 20, 2017 1:23 am

Prov227 wrote:
Thu Oct 19, 2017 11:17 pm
Why couldn't they just make it $18,600 instead? That would be nice and divisible by 24 (or 12) for payroll contribution. At the current limit, it's an easy $750 bi-monthly ($1500 monthly) to max out. For 2018, it will be $770.83333 bi-monthly ($1541.66667 monthly).

Hitting the exact limit just got messier and more of a hassle? I assume it will require making one contribution different from the others to get the numbers to line up? Or is there a better way?
Welcome to my world-- my paychecks are biweekly. Why oh why can't the IRS pick a nice round number like $18,512 or some other multiple of 26?

I've gotten used to just leaving a few dollars on the table.

ivk5
Posts: 152
Joined: Thu Sep 22, 2016 9:05 am

Re: new 401(k) limits announced

Post by ivk5 » Fri Oct 20, 2017 4:07 am

crumbone wrote:
Fri Oct 20, 2017 1:23 am
Prov227 wrote:
Thu Oct 19, 2017 11:17 pm
Why couldn't they just make it $18,600 instead? That would be nice and divisible by 24 (or 12) for payroll contribution. At the current limit, it's an easy $750 bi-monthly ($1500 monthly) to max out. For 2018, it will be $770.83333 bi-monthly ($1541.66667 monthly).

Hitting the exact limit just got messier and more of a hassle? I assume it will require making one contribution different from the others to get the numbers to line up? Or is there a better way?
Welcome to my world-- my paychecks are biweekly. Why oh why can't the IRS pick a nice round number like $18,512 or some other multiple of 26?

I've gotten used to just leaving a few dollars on the table.
Setting aside that you can't please all the people all the time (bi-weekly vs semi-monthly etc) -- I don't believe these adjustments are up to the discretion of the IRS. The limits are inflation-adjusted and rounded following a pre-determined formula without regard for the payroll convenience of individual taxpayers because that is the procedure that is required by law (and that was the basis of the CBO cost analysis at time of legislative consideration etc).

User avatar
CyclingDuo
Posts: 1199
Joined: Fri Jan 06, 2017 9:07 am

Re: new 401(k) limits announced

Post by CyclingDuo » Fri Oct 20, 2017 5:57 am

Prov227 wrote:
Thu Oct 19, 2017 11:17 pm
Hitting the exact limit just got messier and more of a hassle? I assume it will require making one contribution different from the others to get the numbers to line up? Or is there a better way?
Whoever is in charge of the deductions in HR/Payroll usually is on top of it, and makes the adjustment in the December paycheck deduction to hit the full $18K (or soon to be $18.5K) for those employees who are maxing out their contributions. A simple meeting, email, or phone call to this person will take care of any concerns.

rkhusky
Posts: 4818
Joined: Thu Aug 18, 2011 8:09 pm

Re: new 401(k) limits announced

Post by rkhusky » Fri Oct 20, 2017 6:45 am

Prov227 wrote:
Thu Oct 19, 2017 11:17 pm
Why couldn't they just make it $18,600 instead? That would be nice and divisible by 24 (or 12) for payroll contribution. At the current limit, it's an easy $750 bi-monthly ($1500 monthly) to max out. For 2018, it will be $770.83333 bi-monthly ($1541.66667 monthly).

Hitting the exact limit just got messier and more of a hassle? I assume it will require making one contribution different from the others to get the numbers to line up? Or is there a better way?
I just round up to an even number. The last paycheck's contribution is adjusted so that the total contribution is at the max. Just be sure there is enough in the last paycheck to receive the employer match. In the bi-monthly case, you could do $775 and then the last contribution would be $675. Or you could do $780 and the last contribution would be $560.

F150HD
Posts: 1295
Joined: Fri Sep 18, 2015 7:49 pm

Re: new 401(k) limits announced

Post by F150HD » Fri Oct 20, 2017 8:33 am

curious....lets say one automatically contributes $1800 a month from their paycheck which goes directly to their 401/403 custodian from the Payroll Dept at work.

At your place of work does this 'automatically stop' at the 18k employee contribution point? (so one can't overcontribute)

At my place of employment I was told this IS the case (so I won't over-contribute in a given year).

As the Payroll Dept handles this, I was told this directly by my payroll contact. Just wanted to make sure I don't run into a snag.
This would also seem to sidestep the divisibility issue above.

If it matters, where I work its a royal PITA to change contribution amounts (takes weeks), so I set my contribution amount high enough so it'll maximize with a little buffer, this of course is all dependent on the automatic cutoff mentioned above.

ryman554
Posts: 872
Joined: Sun Jan 12, 2014 9:44 pm

Re: new 401(k) limits announced

Post by ryman554 » Fri Oct 20, 2017 8:43 am

F150HD wrote:
Fri Oct 20, 2017 8:33 am
curious....lets say one automatically contributes $1800 a month from their paycheck which goes directly to their 401/403 custodian from the Payroll Dept at work.

At your place of work does this 'automatically stop' at the 18k employee contribution point? (so one can't overcontribute)

At my place of employment I was told this IS the case (so I won't over-contribute in a given year).

As the Payroll Dept handles this, I was told this directly by my payroll contact. Just wanted to make sure I don't run into a snag.
This would also seem to sidestep the divisibility issue above.

If it matters, where I work its a royal PITA to change contribution amounts (takes weeks), so I set my contribution amount high enough so it'll maximize with a little buffer, this of course is all dependent on the automatic cutoff mentioned above.
I have never been with a company where the contributions did not automatically stop once the limit has been reached. I can't believe that it is the exception, rather than the rule.

It flabbergasts me that I am limited to integer percentages of pre-tax income (again, seems oddly common), but that is a different annoyance, easily handled by rounding up and relying on HR to provide the necessary stopageness.

THY4373
Posts: 521
Joined: Thu Mar 22, 2012 3:17 pm

Re: new 401(k) limits announced

Post by THY4373 » Fri Oct 20, 2017 8:45 am

F150HD wrote:
Fri Oct 20, 2017 8:33 am
curious....lets say one automatically contributes $1800 a month from their paycheck which goes directly to their 401/403 custodian from the Payroll Dept at work.

At your place of work does this 'automatically stop' at the 18k employee contribution point? (so one can't overcontribute)

At my place of employment I was told this IS the case (so I won't over-contribute in a given year).

As the Payroll Dept handles this, I was told this directly by my payroll contact. Just wanted to make sure I don't run into a snag.
This would also seem to sidestep the divisibility issue above.

If it matters, where I work its a royal PITA to change contribution amounts (takes weeks), so I set my contribution amount high enough so it'll maximize with a little buffer, this of course is all dependent on the automatic cutoff mentioned above.
If your employer matches your contributions then you need to understand how they do that. For example if you put in $1800 a month you will hit the limit before the end of the year and you will have some pay periods without any contributions from you. My currently employer matches on a pay period basis so if there is a pay period where I put in nothing or less than the amount for maximum match I lose the match (or part of the match). So I have to be careful to make sure that I schedule my contributions across the entire year to keep each pay period at least as much as required for maximum employer match.

Some employers will look at your total contributions for the year and gross up the match correctly based on your overall contributions vs. your pay period contributions. In those instances it is ok to front load your contributions if you prefer. My soon to be ex's company does this.
Last edited by THY4373 on Fri Oct 20, 2017 8:46 am, edited 1 time in total.

an_asker
Posts: 2039
Joined: Thu Jun 27, 2013 2:15 pm

Re: new 401(k) limits announced

Post by an_asker » Fri Oct 20, 2017 8:45 am

Prov227 wrote:
Thu Oct 19, 2017 11:17 pm
Why couldn't they just make it $18,600 instead? That would be nice and divisible by 24 (or 12) for payroll contribution. At the current limit, it's an easy $750 bi-monthly ($1500 monthly) to max out. For 2018, it will be $770.83333 bi-monthly ($1541.66667 monthly).

Hitting the exact limit just got messier and more of a hassle? I assume it will require making one contribution different from the others to get the numbers to line up? Or is there a better way?
IRS and easy?!! :oops:

F150HD
Posts: 1295
Joined: Fri Sep 18, 2015 7:49 pm

Re: new 401(k) limits announced

Post by F150HD » Fri Oct 20, 2017 8:51 am

THY4373 wrote:
Fri Oct 20, 2017 8:45 am
If your employer matches your contributions then you need to understand how they do that. For example if you put in $1800 a month you will hit the limit before the end of the year and you will have some pay periods without any contributions from you.
my 'match' was completed in spring so not quite relevant to me personally, at that, a match doesn't count against the 18k I believe.

Also, I have no issue if I hit the '18k limit' and have a few checks without any contributions, as long as I've contributed the maximum amount before year end I'm fine with that.

F150HD
Posts: 1295
Joined: Fri Sep 18, 2015 7:49 pm

Re: new 401(k) limits announced

Post by F150HD » Fri Oct 20, 2017 8:54 am

ryman554 wrote:
Fri Oct 20, 2017 8:43 am
I have never been with a company where the contributions did not automatically stop once the limit has been reached. I can't believe that it is the exception, rather than the rule.
With payroll software it seems like a no-brainer that when 18k is reached, it should stop. (assuming its not mom-pop where payroll may be done by hand)

THY4373
Posts: 521
Joined: Thu Mar 22, 2012 3:17 pm

Re: new 401(k) limits announced

Post by THY4373 » Fri Oct 20, 2017 9:12 am

F150HD wrote:
Fri Oct 20, 2017 8:51 am
my 'match' was completed in spring so not quite relevant to me personally, at that, a match doesn't count against the 18k I believe.
That is correct the match doesn't count against the 18k (this year) or 18.5k (next year) limit. The issue is when an employer does a match on a per pay period basis like mine. Essentially my employer looks not at my overall contributions for the year in figuring out the match but what I put in each pay period. Thus if I have any 0 contribution pay periods, I get a 0 match. Some employers who do this will "true up" based on your overall contributions but mine does not. So I have to ensure that put in at least 6% of my pay as contributions each pay period to get my 7% match.

It sounds like your employer is more like my soon to be ex's where they made one contribution a year based on my wife's total contributions for the previous year. She could and did while we were married front load her contributions early in the year.

User avatar
Earl Lemongrab
Posts: 3660
Joined: Tue Jun 10, 2014 1:14 am

Re: new 401(k) limits announced

Post by Earl Lemongrab » Fri Oct 20, 2017 11:06 am

F150HD wrote:
Fri Oct 20, 2017 8:33 am
At your place of work does this 'automatically stop' at the 18k employee contribution point? (so one can't overcontribute)
At Megacorp the plan switches to after-tax when the deferral limit is reached. Matching continues.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

F150HD
Posts: 1295
Joined: Fri Sep 18, 2015 7:49 pm

Re: new 401(k) limits announced

Post by F150HD » Fri Oct 20, 2017 11:12 am

Earl Lemongrab wrote:
Fri Oct 20, 2017 11:06 am
F150HD wrote:
Fri Oct 20, 2017 8:33 am
At your place of work does this 'automatically stop' at the 18k employee contribution point? (so one can't overcontribute)
At Megacorp the plan switches to after-tax when the deferral limit is reached. Matching continues.
sounds like a pretty good deal.

F150HD
Posts: 1295
Joined: Fri Sep 18, 2015 7:49 pm

Re: new 401(k) limits announced

Post by F150HD » Fri Oct 20, 2017 11:16 am

THY4373 wrote:
Fri Oct 20, 2017 9:12 am
...So I have to ensure that put in at least 6% of my pay as contributions each pay period to get my 7% match.

It sounds like your employer is more like my soon to be ex's where they made one contribution a year based on my wife's total contributions for the previous year. She could and did while we were married front load her contributions early in the year.
7% sounds pretty good.

Yea, I get a fixed $$ match dollar for dollar up to a ceiling, then its done.

User avatar
Earl Lemongrab
Posts: 3660
Joined: Tue Jun 10, 2014 1:14 am

Re: new 401(k) limits announced

Post by Earl Lemongrab » Fri Oct 20, 2017 11:41 am

F150HD wrote:
Fri Oct 20, 2017 11:12 am
Earl Lemongrab wrote:
Fri Oct 20, 2017 11:06 am
F150HD wrote:
Fri Oct 20, 2017 8:33 am
At your place of work does this 'automatically stop' at the 18k employee contribution point? (so one can't overcontribute)
At Megacorp the plan switches to after-tax when the deferral limit is reached. Matching continues.
sounds like a pretty good deal.
Oh yes. I just put it on the maximum contribution amount (30%) and let it ride. Then roll the after-tax to Roth. The only thing I could wish for was a higher limit.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

rkhusky
Posts: 4818
Joined: Thu Aug 18, 2011 8:09 pm

Re: new 401(k) limits announced

Post by rkhusky » Fri Oct 20, 2017 12:41 pm

Note that if you work for two companies that offer 401K's and you participate in both, you will have to keep track of the total contributions yourself.

User avatar
Earl Lemongrab
Posts: 3660
Joined: Tue Jun 10, 2014 1:14 am

Re: new 401(k) limits announced

Post by Earl Lemongrab » Fri Oct 20, 2017 1:42 pm

[Post removed --admin LadyGeek]
Which is of course against the rules of the forum.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

Rainmaker41
Posts: 423
Joined: Tue Apr 26, 2016 11:34 am

Re: new 401(k) limits announced

Post by Rainmaker41 » Fri Oct 20, 2017 2:20 pm

Prov227 wrote:
Thu Oct 19, 2017 11:17 pm
Why couldn't they just make it $18,600 instead? That would be nice and divisible by 24 (or 12) for payroll contribution. At the current limit, it's an easy $750 bi-monthly ($1500 monthly) to max out. For 2018, it will be $770.83333 bi-monthly ($1541.66667 monthly).

Hitting the exact limit just got messier and more of a hassle? I assume it will require making one contribution different from the others to get the numbers to line up? Or is there a better way?
Set yours to $771 per semi-monthly pay period. Then, in December, tell employer to change to $767 for December 31st. They will have to to comply with federal law. You could say $770 per pay period, but you'd then have to talk them into deducting an extra $20 for December 31st.
My username is not about money, but is my old online gaming username. I can't say that I make a great deal of money; I just hate spending it. Married the most loving woman in the world October 2017.

Admiral
Posts: 1066
Joined: Mon Oct 27, 2014 12:35 pm

Re: new 401(k) limits announced

Post by Admiral » Fri Oct 20, 2017 2:22 pm

Prov227 wrote:
Thu Oct 19, 2017 11:17 pm
Why couldn't they just make it $18,600 instead? That would be nice and divisible by 24 (or 12) for payroll contribution. At the current limit, it's an easy $750 bi-monthly ($1500 monthly) to max out. For 2018, it will be $770.83333 bi-monthly ($1541.66667 monthly).

Hitting the exact limit just got messier and more of a hassle? I assume it will require making one contribution different from the others to get the numbers to line up? Or is there a better way?
Many (most?) payroll software systems that employers use will not allow you to over-contribute. They reduce your December contrib if needed.

Helo80
Posts: 555
Joined: Sat Apr 29, 2017 8:47 pm

Re: new 401(k) limits announced

Post by Helo80 » Fri Oct 20, 2017 6:10 pm

Prov227 wrote:
Thu Oct 19, 2017 11:17 pm
Why couldn't they just make it $18,600 instead? That would be nice and divisible by 24 (or 12) for payroll contribution. At the current limit, it's an easy $750 bi-monthly ($1500 monthly) to max out. For 2018, it will be $770.83333 bi-monthly ($1541.66667 monthly).

Hitting the exact limit just got messier and more of a hassle? I assume it will require making one contribution different from the others to get the numbers to line up? Or is there a better way?
Well, I am paid every other week.... so 26 pay periods per year.... and both 18500 and 18600 don't cleanly divide. It's no problem though.

Also, if you make it to 18500 within a few dollars, I think you'll be okay in the long run ;) You could always do like $771 and then payroll should cut you off on the final 2018 pay check so you'd be at like $765 or whatever...

User avatar
LadyGeek
Site Admin
Posts: 43134
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: new 401(k) limits announced

Post by LadyGeek » Fri Oct 20, 2017 6:18 pm

I removed an off-topic post. As a reminder, speculation on tax reform (proposed legislation) is prohibited by forum policy, see: Unacceptable Topics
Politics and Religion

In order to avoid the inevitable frictions that arise from these topics, political or religious posts and comments are prohibited. The only exceptions to this rule are:
  • Common religious expressions such as sending your prayers to an ailing member.
  • Usage of factual and non-derogatory political labels when necessary to the discussion at hand.
  • Discussions about enacted laws or regulations that affect the individual investor. Note that discussions of proposed legislation are prohibited.
  • Proposed regulations that are directly related to investing may be discussed if and when they are published for public comments.
This forum is focused on investing that is directly actionable to personal investors. We don't hold debates on conjecture.

The whole point of the policy is to (1) eliminate contentious disagreements that result from these discussions and (2) keep investors from making bad decisions. Proposed regulations change many times between the time they're introduced and signed into law.

(This thread is now in the Personal Finance (Not Investing) forum (retirement plan contribution limits.)
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Tiffku08
Posts: 22
Joined: Wed Oct 22, 2014 10:10 am

Re: new 401(k) limits announced

Post by Tiffku08 » Fri Oct 20, 2017 6:34 pm

Thanks for the info! :happy

User avatar
samsoes
Posts: 603
Joined: Tue Mar 05, 2013 9:12 am

Re: new 401(k) limits announced

Post by samsoes » Fri Oct 20, 2017 6:38 pm

ryman554 wrote:
Fri Oct 20, 2017 8:43 am
I have never been with a company where the contributions did not automatically stop once the limit has been reached. I can't believe that it is the exception, rather than the rule.
...
Be aware if you switched jobs mid-year and contributed to both plans (old job's plan + new job's plan), the aggregate limit is still the same. Your new job may inadvertently cause an over-contribution situation. That would be quite a mess to unravel ... :oops:
"Happiness Is Not My Companion" - Gen. Gouverneur K. Warren. (Avatar is the statue of Gen. Warren at Little Round Top @ Gettysburg National Military Park.)

User avatar
LadyGeek
Site Admin
Posts: 43134
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: new 401(k) limits announced

Post by LadyGeek » Fri Oct 20, 2017 6:44 pm

^^^ Switching jobs mid-year may also result in over-withholding of your Social Security tax (FICA). See: Social Security and Medicare Withholding Rates, from the IRS, "Wage base limit". The tax software should catch that, though.
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Prov227
Posts: 31
Joined: Thu Apr 03, 2014 11:13 pm
Location: Milwaukee, WI

Re: new 401(k) limits announced

Post by Prov227 » Fri Oct 20, 2017 9:06 pm

Thanks all for the tip on just slightly over-contributing via payroll installments and expecting HR/payroll to handle with a stop at the limit. That's probably the case for us, I'll check with our PEO. I like round numbers, so I imagine I'll just do $775 for the first 23 pay periods, then expect $675 for the 24th pay period. (Monitoring that 24th installment for the expected amount, naturally....)
"...and the borrower is slave to the lender." -Proverbs 22:7

User avatar
Clever_Username
Posts: 778
Joined: Sun Jul 15, 2012 12:24 am
Location: Southern California

Re: new 401(k) limits announced

Post by Clever_Username » Fri Oct 20, 2017 9:40 pm

This is probably a stupid question on my part, but are other workplace plans affected too? I'm particularly interested to know if I can contribute the new amount to my 403(b).
"What was true then is true now. Have a plan. Stick to it." -- XXXX, [i]Layer Cake[/i]

Helo80
Posts: 555
Joined: Sat Apr 29, 2017 8:47 pm

Re: new 401(k) limits announced

Post by Helo80 » Fri Oct 20, 2017 9:46 pm

samsoes wrote:
Fri Oct 20, 2017 6:38 pm
Be aware if you switched jobs mid-year and contributed to both plans (old job's plan + new job's plan), the aggregate limit is still the same. Your new job may inadvertently cause an over-contribution situation. That would be quite a mess to unravel ... :oops:

I don't think it's a huge mess other than having to take the time to call or contact your 401k administrators and get corrected prior to 2017 tax filing. I think part of being a certified 401k provider is knowing the policies and procedures for refunding participants excess contributions when said participant reaches out to you, the 401k administrator, and informs of the situation.

Helo80
Posts: 555
Joined: Sat Apr 29, 2017 8:47 pm

Re: new 401(k) limits announced

Post by Helo80 » Fri Oct 20, 2017 9:47 pm

Clever_Username wrote:
Fri Oct 20, 2017 9:40 pm
This is probably a stupid question on my part, but are other workplace plans affected too? I'm particularly interested to know if I can contribute the new amount to my 403(b).

Yes, of course....

"The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,000 to $18,500." --- IRS.gov https://www.irs.gov/newsroom/irs-announ ... 0-for-2018

User avatar
Clever_Username
Posts: 778
Joined: Sun Jul 15, 2012 12:24 am
Location: Southern California

Re: new 401(k) limits announced

Post by Clever_Username » Fri Oct 20, 2017 10:18 pm

Helo80 wrote:
Fri Oct 20, 2017 9:47 pm
Clever_Username wrote:
Fri Oct 20, 2017 9:40 pm
This is probably a stupid question on my part, but are other workplace plans affected too? I'm particularly interested to know if I can contribute the new amount to my 403(b).

Yes, of course....

"The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,000 to $18,500." --- IRS.gov https://www.irs.gov/newsroom/irs-announ ... 0-for-2018
That's great news, thanks!
"What was true then is true now. Have a plan. Stick to it." -- XXXX, [i]Layer Cake[/i]

43andcounting
Posts: 20
Joined: Wed Jan 25, 2017 10:10 pm

Re: new 401(k) limits announced

Post by 43andcounting » Fri Oct 20, 2017 10:44 pm

CppCoder wrote:
Thu Oct 19, 2017 7:52 pm
For those who prefer IRS links:

https://www.irs.gov/newsroom/irs-announ ... 0-for-2018

Of importance to those of us who do a mega backdoor Roth, the overall 401k limit is rising from $54,000 to $55,000 (+ catch-up), and the compensation limit is rising from $270,000 to $275,000.
CppCoder, could you please clarify what is the $275k comp limit in relation to mega backdoor ? I am planning to do my first mega backdoor this year, and our income is more that the limit. Any constraints I should be aware of ?

Love your id BTW, was a Cpp coder myself for years, more than 15 years ago, and loved it.

Coolstavi
Posts: 85
Joined: Mon Oct 10, 2016 8:52 pm

Re: new 401(k) limits announced

Post by Coolstavi » Fri Oct 20, 2017 10:48 pm

Prov227 wrote:
Thu Oct 19, 2017 11:17 pm
Why couldn't they just make it $18,600 instead? That would be nice and divisible by 24 (or 12) for payroll contribution. At the current limit, it's an easy $750 bi-monthly ($1500 monthly) to max out. For 2018, it will be $770.83333 bi-monthly ($1541.66667 monthly).

Hitting the exact limit just got messier and more of a hassle? I assume it will require making one contribution different from the others to get the numbers to line up? Or is there a better way?
I've been 19 paychecks for a week. And to think it crossed my mind to do 24 paychecks recently just for the convenience :happy

spammagnet
Posts: 811
Joined: Wed Apr 27, 2016 9:42 pm

Re: new 401(k) limits announced

Post by spammagnet » Fri Oct 20, 2017 10:52 pm

Earl Lemongrab wrote:
Fri Oct 20, 2017 11:06 am
F150HD wrote:
Fri Oct 20, 2017 8:33 am
At your place of work does this 'automatically stop' at the 18k employee contribution point? (so one can't overcontribute)
At Megacorp the plan switches to after-tax when the deferral limit is reached. Matching continues.
DW's Megacorp is not so friendly. We maximized her deductions towards the end of the year when we came into some cash. That included the over-50 catchup. After the beginning of the year they mailed a check for the "excess" contribution because it was not explicitly recorded as catch-up vs the regular annual limit bucket. Not only did she lose out on that much in the account, income tax got adjusted for the "excess" contributions. No allowance was made for recharacterizing the contributions.

AlphaLess
Posts: 46
Joined: Fri Sep 29, 2017 11:38 pm

Re: new 401(k) limits announced

Post by AlphaLess » Fri Oct 20, 2017 11:03 pm

Prov227 wrote:
Thu Oct 19, 2017 11:17 pm
Why couldn't they just make it $18,600 instead? That would be nice and divisible by 24 (or 12) for payroll contribution. At the current limit, it's an easy $750 bi-monthly ($1500 monthly) to max out. For 2018, it will be $770.83333 bi-monthly ($1541.66667 monthly).

Hitting the exact limit just got messier and more of a hassle? I assume it will require making one contribution different from the others to get the numbers to line up? Or is there a better way?
I agree. Divisible by 4! is a good thing.

Traveler
Posts: 530
Joined: Fri Aug 30, 2013 9:07 pm

Re: new 401(k) limits announced

Post by Traveler » Sat Oct 21, 2017 9:24 am

Luckily my megacorp cuts me off when I've contributed the maximum AND does a gross up to ensure I get the maximum quarterly match if I meet the max contribution before the end of the year. Glad they increased the limits for next year - saves some taxes.

SimonJester
Posts: 1368
Joined: Tue Aug 16, 2011 12:39 pm

Re: new 401(k) limits announced

Post by SimonJester » Sat Oct 21, 2017 9:27 am

Earl Lemongrab wrote:
Fri Oct 20, 2017 11:06 am
F150HD wrote:
Fri Oct 20, 2017 8:33 am
At your place of work does this 'automatically stop' at the 18k employee contribution point? (so one can't overcontribute)
At Megacorp the plan switches to after-tax when the deferral limit is reached. Matching continues.
+1 mine too...
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

CppCoder
Posts: 739
Joined: Sat Jan 23, 2016 9:16 pm

Re: new 401(k) limits announced

Post by CppCoder » Sat Oct 21, 2017 9:44 am

43andcounting wrote:
Fri Oct 20, 2017 10:44 pm
CppCoder, could you please clarify what is the $275k comp limit in relation to mega backdoor ? I am planning to do my first mega backdoor this year, and our income is more that the limit. Any constraints I should be aware of ?

Love your id BTW, was a Cpp coder myself for years, more than 15 years ago, and loved it.
A company can only contribute a match (to a qualified plan) on the portion of your salary that is less than the compensation limit. On the date in the year when your salary exceeds this threshold, your company must cease matching. The employee may continue making contributions to their pretax/Roth/after-tax account. For the mega backdoor, this implies that if you exceed the compensation limit, you may need to do some math to optimize the amount of money your company contributes.

Let's do an example. For ease of math (I'll probably mess up the arithmetic anyway), let's say you make $550k/yr, you contribute 5% of your salary, and your company matches 1:1 up to 10%. You might guess that at the end of the year (2018), you will have contributed $18.5k pretax, $9k after-tax, $27.5k match. However, the IRS will have forced the match to stop on July 1. Instead, you will have contributed $18.5k pretax, $9k after-tax, $13.75k match. This assumes that your plan doesn't freeze your contributions at $270k (mine does for paycheck contributions, but you can contribute after $270k by check). Instead, you would be better contributing 10% of your salary, getting a 10% company match, and filling your $55k by July 1. This, of course, assumes the objective function of your optimization problem was to maximize company match and that you are not constrained by other factors.

User avatar
neurosphere
Posts: 2665
Joined: Sun Jan 17, 2010 1:55 pm
Location: NYC

Re: new 401(k) limits announced

Post by neurosphere » Sat Oct 21, 2017 9:53 am

an_asker wrote:
Fri Oct 20, 2017 8:45 am
Prov227 wrote:
Thu Oct 19, 2017 11:17 pm
Why couldn't they just make it $18,600 instead? ...

Hitting the exact limit just got messier and more of a hassle? I assume it will require making one contribution different from the others to get the numbers to line up? Or is there a better way?
IRS and easy?!! :oops:
I realize this comment is essentially in jest, but...

The IRS is just following the rules as codified by law. In this case, it seems it's section 402(g)(4) (if I'm reading the headers correctly) which applies:
(4) Cost-of-living adjustment
In the case of taxable years beginning after December 31, 2006, the Secretary shall adjust the $15,000 amount under paragraph (1)(B) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2005, and any increase under this paragraph which is not a multiple of $500 shall be rounded to the next lowest multiple of $500.
Perhaps we lobby for a change to "shall be rounded to the nearest whole dollar which is a multiple of 2, 12 and 13"?
-- Real name: Sotirios Keros. If you have to ask "Is a Target Retirement fund right for me?", the answer is yes.

Rainmaker41
Posts: 423
Joined: Tue Apr 26, 2016 11:34 am

Re: new 401(k) limits announced

Post by Rainmaker41 » Sat Oct 21, 2017 9:59 am

neurosphere wrote:
Sat Oct 21, 2017 9:53 am
an_asker wrote:
Fri Oct 20, 2017 8:45 am
Prov227 wrote:
Thu Oct 19, 2017 11:17 pm
Why couldn't they just make it $18,600 instead? ...

Hitting the exact limit just got messier and more of a hassle? I assume it will require making one contribution different from the others to get the numbers to line up? Or is there a better way?
IRS and easy?!! :oops:
I realize this comment is essentially in jest, but...

The IRS is just following the rules as codified by law. In this case, it seems it's section 402(g)(4) (if I'm reading the headers correctly) which applies:
(4) Cost-of-living adjustment
In the case of taxable years beginning after December 31, 2006, the Secretary shall adjust the $15,000 amount under paragraph (1)(B) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2005, and any increase under this paragraph which is not a multiple of $500 shall be rounded to the next lowest multiple of $500.
Perhaps we lobby for a change to "shall be rounded to the nearest whole dollar which is a multiple of 2, 12 and 13"?
:shock: So, the limit would be a multiple of 12 x 13 = $156? Since this would have the effect of 'smoothing' the rate of limit increases, I'd be on board. :P
My username is not about money, but is my old online gaming username. I can't say that I make a great deal of money; I just hate spending it. Married the most loving woman in the world October 2017.

hightower
Posts: 424
Joined: Mon Dec 12, 2016 2:28 am

Re: new 401(k) limits announced

Post by hightower » Sat Oct 21, 2017 10:13 am

crumbone wrote:
Fri Oct 20, 2017 1:23 am
Prov227 wrote:
Thu Oct 19, 2017 11:17 pm
Why couldn't they just make it $18,600 instead? That would be nice and divisible by 24 (or 12) for payroll contribution. At the current limit, it's an easy $750 bi-monthly ($1500 monthly) to max out. For 2018, it will be $770.83333 bi-monthly ($1541.66667 monthly).

Hitting the exact limit just got messier and more of a hassle? I assume it will require making one contribution different from the others to get the numbers to line up? Or is there a better way?
Welcome to my world-- my paychecks are biweekly. Why oh why can't the IRS pick a nice round number like $18,512 or some other multiple of 26?

I've gotten used to just leaving a few dollars on the table.
Just set your contributions to a more aggressive amount by rounding up. Round up to 800/pay period or something. You'll get your money in the stock market faster that way. There's no rule that says you have to divide it out perfectly each pay period.

User avatar
neurosphere
Posts: 2665
Joined: Sun Jan 17, 2010 1:55 pm
Location: NYC

Re: new 401(k) limits announced

Post by neurosphere » Sat Oct 21, 2017 10:30 am

hightower wrote:
Sat Oct 21, 2017 10:13 am
Just set your contributions to a more aggressive amount by rounding up. Round up to 800/pay period or something. You'll get your money in the stock market faster that way. There's no rule that says you have to divide it out perfectly each pay period.
One of my former employers (a major university) does not allow this. No contribution can be more than $18,000/26. So they fix the max contribution per pay period as the annual limit divided by 26, and then rounded down to the nearest penny.

But many (most?) employers do indeed allow one to set contributions such that the limit can be reached prior to the end of the calendar year.

Rainmaker41
Posts: 423
Joined: Tue Apr 26, 2016 11:34 am

Re: new 401(k) limits announced

Post by Rainmaker41 » Sat Oct 21, 2017 10:34 am

hightower wrote:
Sat Oct 21, 2017 10:13 am
Just set your contributions to a more aggressive amount by rounding up. Round up to 800/pay period or something. You'll get your money in the stock market faster that way. There's no rule that says you have to divide it out perfectly each pay period.
I think I'll just do this actually. May as well make the change from $750 now in 2017 since I won't use up the 2017 space (contributed less first half of the year). Thanks for the idea.
My username is not about money, but is my old online gaming username. I can't say that I make a great deal of money; I just hate spending it. Married the most loving woman in the world October 2017.

emoore
Posts: 383
Joined: Mon Mar 04, 2013 8:16 pm

Re: new 401(k) limits announced

Post by emoore » Sat Oct 21, 2017 10:46 am

Just be glad its not a percentage of your salary like mine is. Makes it much more difficult to hit the max exactly especially when your salary changes due to raises during the year.

Rainmaker41
Posts: 423
Joined: Tue Apr 26, 2016 11:34 am

Re: new 401(k) limits announced

Post by Rainmaker41 » Sat Oct 21, 2017 11:30 am

On second thought, I think I'll just do $770.83 twice-monthly if allowed by my plan. I'll only be $0.08 short of $18.5k at the end of the year, so it seems silly to use up several people's time to change contributions twice a year over it. I figure it'll get rounded to $18,500 in whole dollars during tax filing in any case.

$0.08 annually at an optimistic 5% real return every year for 33 years until my target date is still only worth $6.41.
My username is not about money, but is my old online gaming username. I can't say that I make a great deal of money; I just hate spending it. Married the most loving woman in the world October 2017.

43andcounting
Posts: 20
Joined: Wed Jan 25, 2017 10:10 pm

Re: new 401(k) limits announced

Post by 43andcounting » Sat Oct 21, 2017 11:46 am

Thank you CppCoder, much appreciated ! Very clear now.

From the example, I assume the $275k is the individual limit, not family limit when filing jointly.
CppCoder wrote:
Sat Oct 21, 2017 9:44 am
43andcounting wrote:
Fri Oct 20, 2017 10:44 pm
CppCoder, could you please clarify what is the $275k comp limit in relation to mega backdoor ? I am planning to do my first mega backdoor this year, and our income is more that the limit. Any constraints I should be aware of ?

Love your id BTW, was a Cpp coder myself for years, more than 15 years ago, and loved it.
A company can only contribute a match (to a qualified plan) on the portion of your salary that is less than the compensation limit. On the date in the year when your salary exceeds this threshold, your company must cease matching. The employee may continue making contributions to their pretax/Roth/after-tax account. For the mega backdoor, this implies that if you exceed the compensation limit, you may need to do some math to optimize the amount of money your company contributes.

Let's do an example. For ease of math (I'll probably mess up the arithmetic anyway), let's say you make $550k/yr, you contribute 5% of your salary, and your company matches 1:1 up to 10%. You might guess that at the end of the year (2018), you will have contributed $18.5k pretax, $9k after-tax, $27.5k match. However, the IRS will have forced the match to stop on July 1. Instead, you will have contributed $18.5k pretax, $9k after-tax, $13.75k match. This assumes that your plan doesn't freeze your contributions at $270k (mine does for paycheck contributions, but you can contribute after $270k by check). Instead, you would be better contributing 10% of your salary, getting a 10% company match, and filling your $55k by July 1. This, of course, assumes the objective function of your optimization problem was to maximize company match and that you are not constrained by other factors.

User avatar
yatesd
Posts: 494
Joined: Sun Nov 03, 2013 8:19 am
Location: MD

Re: new 401(k) limits announced

Post by yatesd » Sat Oct 21, 2017 1:08 pm

crumbone wrote:
Fri Oct 20, 2017 1:23 am
Prov227 wrote:
Thu Oct 19, 2017 11:17 pm
Why couldn't they just make it $18,600 instead? That would be nice and divisible by 24 (or 12) for payroll contribution. At the current limit, it's an easy $750 bi-monthly ($1500 monthly) to max out. For 2018, it will be $770.83333 bi-monthly ($1541.66667 monthly).

Hitting the exact limit just got messier and more of a hassle? I assume it will require making one contribution different from the others to get the numbers to line up? Or is there a better way?
Welcome to my world-- my paychecks are biweekly. Why oh why can't the IRS pick a nice round number like $18,512 or some other multiple of 26?

I've gotten used to just leaving a few dollars on the table.
I always pick a percentage that will leave me pretty far ahead. My goal is for the maximum to automatically be achieved in the Fall (payroll stops at limit), with the remaining higher paychecks helping pay for Christmas gifts. :D

Personally, I enjoy the end of year "boost".

Post Reply