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.