401k catch-up contributions

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sunny_socal
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401k catch-up contributions

Post by sunny_socal » Tue Dec 31, 2019 7:40 am

So I'm turning 50 in 2020 (yay!)

How do I take advantage of catch-up contributions? Am I simply allowed to increase my 401k to a new higher limit?

Thanks in advance, old timers :beer

260chrisb
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Re: 401k catch-up contributions

Post by 260chrisb » Tue Dec 31, 2019 8:11 am

Yes, you are allowed to simply do that. Just take the amount of pay events you have every year and divide $26,000.00 by that number. Turning 50 has some advantages!! :)

livesoft
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Re: 401k catch-up contributions

Post by livesoft » Tue Dec 31, 2019 9:00 am

One has to be careful and see how one's 401(k) plan works. My plan was "enlightened" and I could just increase my contribution. My spouse's plan is plain stupid and one has to put a number in another place in order to have it called "catch-up", otherwise the plan would automatically cut off contributions at the lower amount. She had the same problem with HSA contributions and the age 55 thing.
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CppCoder
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Re: 401k catch-up contributions

Post by CppCoder » Tue Dec 31, 2019 9:03 am

I second livesoft's caveat. I believe my plan is "stupid" as well, requiring a number in a separate box (not positive as I'm younger than 50). I believe I recall reading that the numbers are kept separate because catch-up contributions are not matched and therefore must be accounted for separately.

cshell2
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Re: 401k catch-up contributions

Post by cshell2 » Tue Dec 31, 2019 9:07 am

My plan you have to elect the "catch up" contributions by entering another percentage for that, you can't just increase your regular contribution.

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Re: 401k catch-up contributions

Post by cshell2 » Tue Dec 31, 2019 9:07 am

CppCoder wrote:
Tue Dec 31, 2019 9:03 am
I second livesoft's caveat. I believe my plan is "stupid" as well, requiring a number in a separate box (not positive as I'm younger than 50). I believe I recall reading that the numbers are kept separate because catch-up contributions are not matched and therefore must be accounted for separately.
I think there is also something with safe harbor rules? I vaguely remember them not being subject to limitations for HCE or something.

cas
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Re: 401k catch-up contributions

Post by cas » Tue Dec 31, 2019 9:16 am

And ... if there is a separate place where you have to elect catch-up contributions, it likely won't be visible to you on your plan's web page until the year you turn 50. You'll have to wait until tomorrow to see it. Assuming that your plan's computer works on holidays. Might have to wait until a business day if some human has to actually arrive in at work and kick the computer to get it to update for 2020.

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TechGuy365
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Re: 401k catch-up contributions

Post by TechGuy365 » Tue Dec 31, 2019 9:25 am

I have Fidelity and instead of it automatically stopping in mid-year when the pre-50 maximum contribution ($19k) is reached, when I turned 50 it just kept going. Per plan: "...payroll will continue your existing pre-tax + Roth contribution elections until you reach the combined limit of $26,000 (regular + catch-up)".

WolfgangPauli
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Re: 401k catch-up contributions

Post by WolfgangPauli » Tue Dec 31, 2019 9:32 am

It is just more contribution. Not like it is a separate account or something but my two jobs I have had both required a separate sign up and on my pay stub they are separated out. I wonder if that is because the employer is required to verify you are in fact, over 50. I am not sure but it appears the "stupid" way seems to be the most common. For you, it does not matter in the end at all.
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Tamales
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Re: 401k catch-up contributions

Post by Tamales » Tue Dec 31, 2019 10:56 am

Yep, as others have noted, the 'rules' can be different across plans.
Another thing to be aware of, and that happened to me, relates to the timing/linkage between regular and catchup contributions.

I figured the plan would automatically wait on applying toward the catchup contributions until you filled the regular contribution bin (i.e. that they happened in sequence), but in my second year of eligibility, my January paycheck was practically zero because it took out contributions for both simultaneously, and I had the catchup percentage set quite high.
Just another factor to ask about, to avoid surprises.

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watchnerd
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Re: 401k catch-up contributions

Post by watchnerd » Tue Dec 31, 2019 11:01 am

Me, too!

For our plan, you just jack the percentage up, no extra steps needed.

I only wish the catch up was matched 50%, too; in my work plan, it isn't, only the 'regular' contribution is matched.
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livesoft
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Re: 401k catch-up contributions

Post by livesoft » Tue Dec 31, 2019 11:07 am

My spouse's max company match is based on compensation. One needs to contribute at least 6% of salary to the 401(k) to get the max 3% of compensation match. So with a $26,000 contribution, that means only salaries+bonuses above $26K/0.06 = $433.33K would be affected. That's probably no one in her company since everybody with a higher salary is probably in a deferred compensation plan.
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teen persuasion
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Re: 401k catch-up contributions

Post by teen persuasion » Tue Dec 31, 2019 12:53 pm

DH has had employers with "stupid" plans, too. Previous employer, it was obvious - you had to set a contribution percentage for both buckets. That confused me, I'd assumed you just had a higher limit to contribute up to, but they wanted you to contribute to both buckets simultaneously thruout the year.

Current employer's quarterly paper forms :annoyed to choose contribution amounts had no separate lines for catch up contribution, so I thought they were not stupid. No such luck - DH's contributions got cutoff at $19k in paycheck 25. He talked to HR about it, and they managed to restart his contributions AND correct for the reduced previous one, all before the end of the year. Hooray!

Then they created a new, improved paper form, just because of him, with two separate contribution percentages. :oops: They were terribly confused when he put zero in the catchup contributions portion for next year (we've shifted more retirement deferrals to my *new* SIMPLE IRA, so now his are reduced below the max).

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watchnerd
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Re: 401k catch-up contributions

Post by watchnerd » Tue Dec 31, 2019 4:45 pm

teen persuasion wrote:
Tue Dec 31, 2019 12:53 pm
DH has had employers with "stupid" plans, too. Previous employer, it was obvious - you had to set a contribution percentage for both buckets. That confused me, I'd assumed you just had a higher limit to contribute up to, but they wanted you to contribute to both buckets simultaneously thruout the year.

Current employer's quarterly paper forms :annoyed to choose contribution amounts had no separate lines for catch up contribution, so I thought they were not stupid. No such luck - DH's contributions got cutoff at $19k in paycheck 25. He talked to HR about it, and they managed to restart his contributions AND correct for the reduced previous one, all before the end of the year. Hooray!

Then they created a new, improved paper form, just because of him, with two separate contribution percentages. :oops: They were terribly confused when he put zero in the catchup contributions portion for next year (we've shifted more retirement deferrals to my *new* SIMPLE IRA, so now his are reduced below the max).
I find anecdotes like this very interesting.

Not specific to your DH's company, but broadly across other companies, too. Are there...

1. A lack of >50 workers using catch-up contributions, so this doesn't come up?

2. A lack of >50 workers, generally?
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lstone19
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Re: 401k catch-up contributions

Post by lstone19 » Tue Dec 31, 2019 6:33 pm

Definitely plan specific. To provide more anecdotes:

- My employer: 401k managed by Fidelity. One percentage so after 50, stopped at the total regular and catch-up. Company match essentially did a true-up every paycheck if you maxed early in the year (each pay period, calculate company match on the YTD contributions and salary, subtract company match to date, and that was the match for the period. Since the company match 1:1 on the first 4%, it means the 4% company match continued all year even if I had maxed my contributions in June. Very, very easy.

- My wife's employer: Regular and catch-up are separate percentages. Company match is only on the regular, variable rate on the first 6%, and is done by company's fiscal quarters (fiscal year starts in December so don't match calendar quarters). If you max regular too early in the year, no match for the later quarter. Real risk of losing match if you don't make sure your regular contributions stretch into December. Her compensation varies so need to manage contribution rate, particularly late in the year (further complicated by a full pay period lag in making changes). Further complication of no guarantee of any income in Jan/Feb so really want December contribution to be at least 6% of December pay. But advantage of catch-up not affecting match at all so she sets catch-up percentage high and maxes it by end of February.
Last edited by lstone19 on Tue Dec 31, 2019 11:26 pm, edited 1 time in total.

livesoft
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Re: 401k catch-up contributions

Post by livesoft » Tue Dec 31, 2019 6:51 pm

watchnerd wrote:
Tue Dec 31, 2019 4:45 pm
[...]
I find anecdotes like this very interesting.

Not specific to your DH's company, but broadly across other companies, too. Are there...

1. A lack of >50 workers using catch-up contributions, so this doesn't come up?

2. A lack of >50 workers, generally?
I can say this: My spouse works for a company with over 500 employees. When they (head of HR) added the true-up, they did not issue any e-mail nor letter nor notice that the true-up was in place. Only after 18 months when my spouse asked why they didn't have a true up so that she would not have to perform the Ninja financial gymnastics with changing 401(k) contribution amounts 3 times each December did they tell her that there was now a true up. When asked why there was no announcement, the answer was: "Oh, it only affected 3 people in the company, so there was no point to announce it." BTW, the true-up is paid in the March following the tax year, so if you left before that then you would not get it.

She also learned that there were less than a dozen employees who contributed the max allowed to the 401(k). From talking to her colleagues these tended to be engineers close to retirement whose children were already out of college and on their own.

I was on the 401(k) committee at my last employer. We got aggregate reports of contributions of employees as a dot plot: A dot for each employee with their contribution amount along the Y scale and say age ranges on the X scale or salary ranges or other way to divide up employees without revealing who they were. I learned that some of the highest paid employees did not even contribute to the 401(k) plan. I can rationalize that in many ways: Perhaps their spouse had a better 401(k) plan and the couple used the other plan. Or maybe the highest paid employees were in their 70s and didn't need to stash away money anymore. Or something else like remodeling their home or buying a vacation home.
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watchnerd
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Re: 401k catch-up contributions

Post by watchnerd » Tue Dec 31, 2019 7:31 pm

livesoft wrote:
Tue Dec 31, 2019 6:51 pm
watchnerd wrote:
Tue Dec 31, 2019 4:45 pm
[...]
I find anecdotes like this very interesting.

Not specific to your DH's company, but broadly across other companies, too. Are there...

1. A lack of >50 workers using catch-up contributions, so this doesn't come up?

2. A lack of >50 workers, generally?
I can say this: My spouse works for a company with over 500 employees. When they (head of HR) added the true-up, they did not issue any e-mail nor letter nor notice that the true-up was in place. Only after 18 months when my spouse asked why they didn't have a true up so that she would not have to perform the Ninja financial gymnastics with changing 401(k) contribution amounts 3 times each December did they tell her that there was now a true up. When asked why there was no announcement, the answer was: "Oh, it only affected 3 people in the company, so there was no point to announce it." BTW, the true-up is paid in the March following the tax year, so if you left before that then you would not get it.

She also learned that there were less than a dozen employees who contributed the max allowed to the 401(k). From talking to her colleagues these tended to be engineers close to retirement whose children were already out of college and on their own.

I was on the 401(k) committee at my last employer. We got aggregate reports of contributions of employees as a dot plot: A dot for each employee with their contribution amount along the Y scale and say age ranges on the X scale or salary ranges or other way to divide up employees without revealing who they were. I learned that some of the highest paid employees did not even contribute to the 401(k) plan. I can rationalize that in many ways: Perhaps their spouse had a better 401(k) plan and the couple used the other plan. Or maybe the highest paid employees were in their 70s and didn't need to stash away money anymore. Or something else like remodeling their home or buying a vacation home.
This is why I wish the US would move to a default opt-in for 401ks, like Australia.
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livesoft
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Re: 401k catch-up contributions

Post by livesoft » Tue Dec 31, 2019 7:53 pm

My employer not only had default opt-in, but also contributed to one's 401(k) whether one contributed anything at all. That is, the "match" was automatic. Nevertheless, some employees apparently opted out which was totally strange to me since it meant they were giving up totally free money with no obligation on their part ever to contribute anything at all.

You can't fix stupid.

One more thing: I asked in a small group meeting how we could improve the company 401(k) plan. A colleague raised his hand and said, "It would be great if we had index funds in the plan to invest in." I calmly answered, "The plan has had index funds for the past two years, so your wish has been granted." He just didn't bother to even look.
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Re: 401k catch-up contributions

Post by watchnerd » Tue Dec 31, 2019 9:06 pm

livesoft wrote:
Tue Dec 31, 2019 7:53 pm
My employer not only had default opt-in, but also contributed to one's 401(k) whether one contributed anything at all. That is, the "match" was automatic. Nevertheless, some employees apparently opted out which was totally strange to me since it meant they were giving up totally free money with no obligation on their part ever to contribute anything at all.

You can't fix stupid.

One more thing: I asked in a small group meeting how we could improve the company 401(k) plan. A colleague raised his hand and said, "It would be great if we had index funds in the plan to invest in." I calmly answered, "The plan has had index funds for the past two years, so your wish has been granted." He just didn't bother to even look.
You had the most generous 401k I've ever heard of....I've never ever heard of free money without any contributions.
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sambb
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Re: 401k catch-up contributions

Post by sambb » Tue Dec 31, 2019 9:10 pm

how to do this with tiaa?

lstone19
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Re: 401k catch-up contributions

Post by lstone19 » Tue Dec 31, 2019 9:14 pm

watchnerd wrote:
Tue Dec 31, 2019 9:06 pm
livesoft wrote:
Tue Dec 31, 2019 7:53 pm
My employer not only had default opt-in, but also contributed to one's 401(k) whether one contributed anything at all. That is, the "match" was automatic.
You had the most generous 401k I've ever heard of....I've never ever heard of free money without any contributions.
When my employer terminated the defined benefit pension plan, they started making contributions to the 401k in lieu (no employee contribution required) - up to 4% based on an age and years of service formula. There was also a contribution match up to 4% so for some, an 8% company contribution.

JD2775
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Re: 401k catch-up contributions

Post by JD2775 » Tue Dec 31, 2019 9:17 pm

watchnerd wrote:
Tue Dec 31, 2019 9:06 pm
livesoft wrote:
Tue Dec 31, 2019 7:53 pm
My employer not only had default opt-in, but also contributed to one's 401(k) whether one contributed anything at all. That is, the "match" was automatic. Nevertheless, some employees apparently opted out which was totally strange to me since it meant they were giving up totally free money with no obligation on their part ever to contribute anything at all.

You can't fix stupid.

One more thing: I asked in a small group meeting how we could improve the company 401(k) plan. A colleague raised his hand and said, "It would be great if we had index funds in the plan to invest in." I calmly answered, "The plan has had index funds for the past two years, so your wish has been granted." He just didn't bother to even look.
You had the most generous 401k I've ever heard of....I've never ever heard of free money without any contributions.
My employer is similar. They give 3% automatic whether you contribute or not, plus up to 6% matching in addition. So 9% total (if you contribute at least 6%). The 3% is deposited once a month, the 6% is per paycheck (to match your deductions per paycheck). It's one of the best things about my employer, a lot of other things aren't so great but this piece is

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watchnerd
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Re: 401k catch-up contributions

Post by watchnerd » Tue Dec 31, 2019 10:19 pm

JD2775 wrote:
Tue Dec 31, 2019 9:17 pm
watchnerd wrote:
Tue Dec 31, 2019 9:06 pm
livesoft wrote:
Tue Dec 31, 2019 7:53 pm
My employer not only had default opt-in, but also contributed to one's 401(k) whether one contributed anything at all. That is, the "match" was automatic. Nevertheless, some employees apparently opted out which was totally strange to me since it meant they were giving up totally free money with no obligation on their part ever to contribute anything at all.

You can't fix stupid.

One more thing: I asked in a small group meeting how we could improve the company 401(k) plan. A colleague raised his hand and said, "It would be great if we had index funds in the plan to invest in." I calmly answered, "The plan has had index funds for the past two years, so your wish has been granted." He just didn't bother to even look.
You had the most generous 401k I've ever heard of....I've never ever heard of free money without any contributions.
My employer is similar. They give 3% automatic whether you contribute or not, plus up to 6% matching in addition. So 9% total (if you contribute at least 6%). The 3% is deposited once a month, the 6% is per paycheck (to match your deductions per paycheck). It's one of the best things about my employer, a lot of other things aren't so great but this piece is
lstone19 wrote:
Tue Dec 31, 2019 9:14 pm
watchnerd wrote:
Tue Dec 31, 2019 9:06 pm
livesoft wrote:
Tue Dec 31, 2019 7:53 pm
My employer not only had default opt-in, but also contributed to one's 401(k) whether one contributed anything at all. That is, the "match" was automatic.
You had the most generous 401k I've ever heard of....I've never ever heard of free money without any contributions.
When my employer terminated the defined benefit pension plan, they started making contributions to the 401k in lieu (no employee contribution required) - up to 4% based on an age and years of service formula. There was also a contribution match up to 4% so for some, an 8% company contribution.
I guess if the company previously had a pension, that's a transition plan.

My company matches 50%. If you contribute nothing, you get nothing.
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teen persuasion
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Re: 401k catch-up contributions

Post by teen persuasion » Tue Dec 31, 2019 10:53 pm

watchnerd wrote:
Tue Dec 31, 2019 4:45 pm

I find anecdotes like this very interesting.

Not specific to your DH's company, but broadly across other companies, too. Are there...

1. A lack of >50 workers using catch-up contributions, so this doesn't come up?

2. A lack of >50 workers, generally?
In his case, it's lack of workers contributing anywhere near max to retirement. When he went to HR to restart his contributions, he was told there was one other person using the catch up provision. HR worked with her individually to set her contributions up. I guess when DH made #2, it was time for an "official" form to handle the catch up.

He was probably one of the only employees maxing the 401k at another employer - when he first maxed it out, the next year they tried to tell him he'd overcontributed, but I knew he'd done it right. Turns out it had something to do with their fiscal year beginning July 1, and pay was uneven thruout the year (13 paychecks in the spring semester, 8 in the fall), and a change in the max from one year to the next. He'd contributed the max in the calendar year, but not right for the fiscal year breaks. Once I'd researched it, I emailed my findings to the CFO (ran the wealth management firm the 401k was thru) but realized DH had probably technically overcontributed and did need to get it returned to him. He switched and said DH didn't need to make any changes (tear up the paperwork to request the overcontribution back), and asked if I wanted a job! Wait, what? No accounting degree here, just Google.

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Re: 401k catch-up contributions

Post by watchnerd » Tue Dec 31, 2019 11:08 pm

teen persuasion wrote:
Tue Dec 31, 2019 10:53 pm
watchnerd wrote:
Tue Dec 31, 2019 4:45 pm

I find anecdotes like this very interesting.

Not specific to your DH's company, but broadly across other companies, too. Are there...

1. A lack of >50 workers using catch-up contributions, so this doesn't come up?

2. A lack of >50 workers, generally?
In his case, it's lack of workers contributing anywhere near max to retirement. When he went to HR to restart his contributions, he was told there was one other person using the catch up provision. HR worked with her individually to set her contributions up. I guess when DH made #2, it was time for an "official" form to handle the catch up.

He was probably one of the only employees maxing the 401k at another employer - when he first maxed it out, the next year they tried to tell him he'd overcontributed, but I knew he'd done it right. Turns out it had something to do with their fiscal year beginning July 1, and pay was uneven thruout the year (13 paychecks in the spring semester, 8 in the fall), and a change in the max from one year to the next. He'd contributed the max in the calendar year, but not right for the fiscal year breaks. Once I'd researched it, I emailed my findings to the CFO (ran the wealth management firm the 401k was thru) but realized DH had probably technically overcontributed and did need to get it returned to him. He switched and said DH didn't need to make any changes (tear up the paperwork to request the overcontribution back), and asked if I wanted a job! Wait, what? No accounting degree here, just Google.
Thanks. Wow.

/rant on

It's the 21st century.

401ks have been around since, what, the 1980s?

Modern payroll platforms do this stuff automatically. I know because I spent 15 years working in Silicon Valley startups and none of them were going to invent payroll systems from scratch.

How is this still a problem for even small companies at this stage?

It's solved, at this point....

/rant off
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sunny_socal
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Re: 401k catch-up contributions

Post by sunny_socal » Mon Jan 06, 2020 2:37 pm

Thanks everyone!

So yes, turns out even my 401k site has as additional "catch-up" election that must be selected in addition to the "core" election.

Silly IMO but at least it's there.

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