Pre-Tax + After-Tax + Match MAX: Any way to easily avoid IRS limit ($57k)

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Nathan Drake
Posts: 459
Joined: Mon Apr 11, 2011 12:28 am

Pre-Tax + After-Tax + Match MAX: Any way to easily avoid IRS limit ($57k)

Post by Nathan Drake » Fri Nov 15, 2019 10:58 pm

Income is variable throughout the year (salary/overtime) and yet my contribution to 401k is a fixed percentage.

As an example: assume salary of 100k, 4% match

Contribution to 401k:

53% of income = 53k (19.5k pre tax, 33.5 after tax)

53k + 4k match = 57k limit

—————————

The above example assumes no salary increase or overtime. If you do expect a salary increase and overtime, how do you adjust?

Just set the limit at 53% and then during the last pay period or two drop the percentage to the amount needed to not exceed the limit?

Is there an easier way to do this? I assume there’s nothing that will stop me from over-contributing and I’m not sure if the consequences of that.

Ocean77
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Joined: Wed Oct 23, 2019 3:20 pm

Re: Pre-Tax + After-Tax + Match MAX: Any way to easily avoid IRS limit ($57k)

Post by Ocean77 » Fri Nov 15, 2019 11:08 pm

In my employer's 401k plan, the contributions automatically stop once the limit is reached. I would guess that most 401k plans work this way.

MathIsMyWayr
Posts: 1117
Joined: Mon Mar 27, 2017 10:47 pm
Location: CA

Re: Pre-Tax + After-Tax + Match MAX: Any way to easily avoid IRS limit ($57k)

Post by MathIsMyWayr » Fri Nov 15, 2019 11:14 pm

Ocean77 wrote:
Fri Nov 15, 2019 11:08 pm
In my employer's 401k plan, the contributions automatically stop once the limit is reached. I would guess that most 401k plans work this way.
The trouble is that match may stop when the total contribution reaches $57k before the last pay check. In my case, match also stops because there is no more room for it.

Topic Author
Nathan Drake
Posts: 459
Joined: Mon Apr 11, 2011 12:28 am

Re: Pre-Tax + After-Tax + Match MAX: Any way to easily avoid IRS limit ($57k)

Post by Nathan Drake » Fri Nov 15, 2019 11:30 pm

Ocean77 wrote:
Fri Nov 15, 2019 11:08 pm
In my employer's 401k plan, the contributions automatically stop once the limit is reached. I would guess that most 401k plans work this way.
I guess I just need to try and plan it so that I max out on the last pay period.

As long as the last pay period has a contribution above 4% while reaching 57k total I should be okay to get the full match

I’ll need to see if my plan does this. They automatically cut off pre-tax at 19.5k then switches over to after-tax

Ocean77
Posts: 59
Joined: Wed Oct 23, 2019 3:20 pm

Re: Pre-Tax + After-Tax + Match MAX: Any way to easily avoid IRS limit ($57k)

Post by Ocean77 » Sat Nov 16, 2019 1:56 am

MathIsMyWayr wrote:
Fri Nov 15, 2019 11:14 pm
Ocean77 wrote:
Fri Nov 15, 2019 11:08 pm
In my employer's 401k plan, the contributions automatically stop once the limit is reached. I would guess that most 401k plans work this way.
The trouble is that match may stop when the total contribution reaches $57k before the last pay check. In my case, match also stops because there is no more room for it.
In my employers plan, the match does not stop once my contribution stops due to the limit. They call it "Reconciling Match". This ensures that an employee gets the same company match, no matter if the contribution was spread out over the year or occurred only during a part of the year. But perhaps not every 401k plan has that nice feature.

Also, the limit applies only to the contribution, not to the company match. In other words, the company match does not count towards the IRS limit for the 401k.

BigJohn
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Joined: Wed Apr 02, 2014 11:27 pm

Re: Pre-Tax + After-Tax + Match MAX: Any way to easily avoid IRS limit ($57k)

Post by BigJohn » Sat Nov 16, 2019 3:51 am

Nathan Drake wrote:
Fri Nov 15, 2019 11:30 pm
Ocean77 wrote:
Fri Nov 15, 2019 11:08 pm
In my employer's 401k plan, the contributions automatically stop once the limit is reached. I would guess that most 401k plans work this way.
I guess I just need to try and plan it so that I max out on the last pay period.

As long as the last pay period has a contribution above 4% while reaching 57k total I should be okay to get the full match

I’ll need to see if my plan does this. They automatically cut off pre-tax at 19.5k then switches over to after-tax
This was the way my employer plan worked and that’s what I did for years.

MathIsMyWayr
Posts: 1117
Joined: Mon Mar 27, 2017 10:47 pm
Location: CA

Re: Pre-Tax + After-Tax + Match MAX: Any way to easily avoid IRS limit ($57k)

Post by MathIsMyWayr » Sat Nov 16, 2019 6:06 am

Ocean77 wrote:
Sat Nov 16, 2019 1:56 am
MathIsMyWayr wrote:
Fri Nov 15, 2019 11:14 pm
Ocean77 wrote:
Fri Nov 15, 2019 11:08 pm
In my employer's 401k plan, the contributions automatically stop once the limit is reached. I would guess that most 401k plans work this way.
The trouble is that match may stop when the total contribution reaches $57k before the last pay check. In my case, match also stops because there is no more room for it.
In my employers plan, the match does not stop once my contribution stops due to the limit. They call it "Reconciling Match". This ensures that an employee gets the same company match, no matter if the contribution was spread out over the year or occurred only during a part of the year. But perhaps not every 401k plan has that nice feature.

Also, the limit applies only to the contribution, not to the company match. In other words, the company match does not count towards the IRS limit for the 401k.
The IRS annual contribution limit includes all the contributions including employer match.
"Compensation limit for contributions
Remember that annual contributions to all of your accounts - this includes elective deferrals, employee contributions, employer matching and discretionary contributions and allocations of forfeitures to your accounts - may not exceed the lesser of 100% of your compensation or $57,000 for 2020 ($56,000 for 2019)."

https://www.irs.gov/retirement-plans/pl ... ion-limits

dcabler
Posts: 1138
Joined: Wed Feb 19, 2014 11:30 am

Re: Pre-Tax + After-Tax + Match MAX: Any way to easily avoid IRS limit ($57k)

Post by dcabler » Sat Nov 16, 2019 6:32 am

Ocean77 wrote:
Sat Nov 16, 2019 1:56 am
MathIsMyWayr wrote:
Fri Nov 15, 2019 11:14 pm
Ocean77 wrote:
Fri Nov 15, 2019 11:08 pm
In my employer's 401k plan, the contributions automatically stop once the limit is reached. I would guess that most 401k plans work this way.
The trouble is that match may stop when the total contribution reaches $57k before the last pay check. In my case, match also stops because there is no more room for it.
In my employers plan, the match does not stop once my contribution stops due to the limit. They call it "Reconciling Match". This ensures that an employee gets the same company match, no matter if the contribution was spread out over the year or occurred only during a part of the year. But perhaps not every 401k plan has that nice feature.

Also, the limit applies only to the contribution, not to the company match. In other words, the company match does not count towards the IRS limit for the 401k.
In my plan, really all plans I've had so far, the "reconciliation match" or "true up" happens as a lump sum the following year, usually in the April timeframe.

teCh0010
Posts: 4
Joined: Mon Oct 31, 2011 11:20 am

Re: Pre-Tax + After-Tax + Match MAX: Any way to easily avoid IRS limit ($57k)

Post by teCh0010 » Sat Nov 16, 2019 9:33 am

My plan caps out your pre-tax and post-tax contributions to leave room for match.

So when you hit 19k pre-tax or 28k post tax payroll stops, leaving room for the 9k match. Our 9k match is capped on a quarter basis on pre tax contributions, and since I maxed out both pre and post tax last month I’m short 2250 on the match, I’ll get that as a Jan true up.

My work has a very clear FAQ about post tax, Roth in plan conversion, and our plans handling of the payroll limits. You will need to ask your plan administrator how they handle it.

Ocean77
Posts: 59
Joined: Wed Oct 23, 2019 3:20 pm

Re: Pre-Tax + After-Tax + Match MAX: Any way to easily avoid IRS limit ($57k)

Post by Ocean77 » Sat Nov 16, 2019 11:23 am

MathIsMyWayr wrote:
Sat Nov 16, 2019 6:06 am
Ocean77 wrote:
Sat Nov 16, 2019 1:56 am
MathIsMyWayr wrote:
Fri Nov 15, 2019 11:14 pm
Ocean77 wrote:
Fri Nov 15, 2019 11:08 pm
In my employer's 401k plan, the contributions automatically stop once the limit is reached. I would guess that most 401k plans work this way.
The trouble is that match may stop when the total contribution reaches $57k before the last pay check. In my case, match also stops because there is no more room for it.
In my employers plan, the match does not stop once my contribution stops due to the limit. They call it "Reconciling Match". This ensures that an employee gets the same company match, no matter if the contribution was spread out over the year or occurred only during a part of the year. But perhaps not every 401k plan has that nice feature.

Also, the limit applies only to the contribution, not to the company match. In other words, the company match does not count towards the IRS limit for the 401k.
The IRS annual contribution limit includes all the contributions including employer match.
"Compensation limit for contributions
Remember that annual contributions to all of your accounts - this includes elective deferrals, employee contributions, employer matching and discretionary contributions and allocations of forfeitures to your accounts - may not exceed the lesser of 100% of your compensation or $57,000 for 2020 ($56,000 for 2019)."

https://www.irs.gov/retirement-plans/pl ... ion-limits
Thanks for correcting me! Good to know!

JediMisty
Posts: 359
Joined: Tue Aug 07, 2018 7:06 am
Location: Central NJ

Re: Pre-Tax + After-Tax + Match MAX: Any way to easily avoid IRS limit ($57k)

Post by JediMisty » Sat Nov 16, 2019 11:31 am

Nathan Drake wrote:
Fri Nov 15, 2019 10:58 pm
Income is variable throughout the year (salary/overtime) and yet my contribution to 401k is a fixed percentage.

As an example: assume salary of 100k, 4% match

Contribution to 401k:

53% of income = 53k (19.5k pre tax, 33.5 after tax)

53k + 4k match = 57k limit

—————————

The above example assumes no salary increase or overtime. If you do expect a salary increase and overtime, how do you adjust?

Just set the limit at 53% and then during the last pay period or two drop the percentage to the amount needed to not exceed the limit?

Is there an easier way to do this? I assume there’s nothing that will stop me from over-contributing and I’m not sure if the consequences of that.
Depends on your plan. I have to contribute to pre-tax every paycheck at least the match. I have a spreadsheet to help me optimize my contributions to get in as much as I can as soon as I can while leaving the match amount (5%) and leaving funds to cover all my withholding and my cost of benefits. Some paychecks were $15 at the beginning of the year.

Topic Author
Nathan Drake
Posts: 459
Joined: Mon Apr 11, 2011 12:28 am

Re: Pre-Tax + After-Tax + Match MAX: Any way to easily avoid IRS limit ($57k)

Post by Nathan Drake » Sat Nov 16, 2019 2:15 pm

Yeah my plan does not have a “True Up”, so I’ll just need to plan my contributions carefully

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