Author Topic: Company won't allow 401k catch-up contribution  (Read 2591 times)

Pizzabrewer

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Company won't allow 401k catch-up contribution
« on: November 16, 2018, 05:11:33 AM »
I was withholding at a rate that would have gotten me close to the $24,500 max. Yes I'm over 50 years old.

In my last paycheck the 401k amount was only $112, which brought me to exactly $18,500 for the year.

I contacted HR about it and they said despite the federal catch-up provision it is company policy to restrict everyone to $18.5k.

My question:  is this legal for them to do?  Do I have any recourse?  I suspect it is to limit the amount of matching contribution, which is a meager 25% of the first 6%.

This throws a wrench in my tax planning.

Any advice is appreciated.
« Last Edit: November 16, 2018, 05:18:50 AM by Pizzabrewer »

matchewed

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Re: Company won't allow 401k catch-up contribution
« Reply #1 on: November 16, 2018, 05:37:52 AM »
Yes it is legal. Yes you of course have an avenue of recourse. Talk to your fellow 50 and older people at work and petition HR. Enough people can move the needle. If it is because the provider does not offer it then petition to change 401k providers.

matchewed

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ixtap

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Re: Company won't allow 401k catch-up contribution
« Reply #3 on: November 16, 2018, 06:59:00 AM »
For other readers, this is a good example of why it is important to research your plan.

I'm a red panda

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Re: Company won't allow 401k catch-up contribution
« Reply #4 on: November 16, 2018, 08:23:16 AM »
For other readers, this is a good example of why it is important to research your plan.

But what good does that do? It's not like most employees offer alternatives. You take what is offered.

ixtap

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Re: Company won't allow 401k catch-up contribution
« Reply #5 on: November 16, 2018, 09:27:28 AM »
For other readers, this is a good example of why it is important to research your plan.

But what good does that do? It's not like most employees offer alternatives. You take what is offered.

You don't make tax plans based on false information.

Pizzabrewer

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Re: Company won't allow 401k catch-up contribution
« Reply #6 on: November 16, 2018, 09:30:30 AM »
For other readers, this is a good example of why it is important to research your plan.

But what good does that do? It's not like most employees offer alternatives. You take what is offered.

And I had no reason to suspect otherwise. When I log into my Empower Retirement account it shows a graph of projected contributions for the year. It goes right up to $24k.

But yeah I guess I could have dug into the details better.  Hindsight.  20/20.  All that.
« Last Edit: November 16, 2018, 12:24:12 PM by Pizzabrewer »

dcheesi

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Re: Company won't allow 401k catch-up contribution
« Reply #7 on: November 16, 2018, 09:31:45 AM »
Probably it is just easier for them to set a single limit in their payroll software, rather than implementing different rules for different employees and verifying employee ages for compliance.

spartanswami

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Re: Company won't allow 401k catch-up contribution
« Reply #8 on: November 16, 2018, 10:09:21 AM »
Thanks for sharing this because I was completely unaware that it was up to the employer/provider to support catch-up contributions (had always thought that this was by law).

ixtap

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Re: Company won't allow 401k catch-up contribution
« Reply #9 on: November 16, 2018, 10:54:34 AM »
Thanks for sharing this because I was completely unaware that it was up to the employer/provider to support catch-up contributions (had always thought that this was by law).

Some employers don't even allow all employees to contribute the full $18.5k, especially if they limit the percentage of base pay that can be contributed. The federal limits are maximums, there are a lot of variations by plan.

I'm a red panda

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Re: Company won't allow 401k catch-up contribution
« Reply #10 on: November 16, 2018, 11:38:44 AM »
For other readers, this is a good example of why it is important to research your plan.

But what good does that do? It's not like most employees offer alternatives. You take what is offered.

You don't make tax plans based on false information.

I see what you mean now.

FrugalToque

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Re: Company won't allow 401k catch-up contribution
« Reply #11 on: November 16, 2018, 11:43:41 AM »
I was withholding at a rate that would have gotten me close to the $24,500 max. Yes I'm over 50 years old.

In my last paycheck the 401k amount was only $112, which brought me to exactly $18,500 for the year.

I contacted HR about it and they said despite the federal catch-up provision it is company policy to restrict everyone to $18.5k.

My question:  is this legal for them to do?  Do I have any recourse?  I suspect it is to limit the amount of matching contribution, which is a meager 25% of the first 6%.

This throws a wrench in my tax planning.

Any advice is appreciated.

Can someone educate me on this one?

1.  If a company like yours won't do the max paycheque deduction at source, can you still use that leftover space yourself?  By directly depositing it into the account or some other 401k account?  Or are you screwed because your employer doesn't feel like it?  (In Canada, I don't know any employers who impose a limit like this, but I'm always able to walk into my bank, open an tax-free account and put money in it.  I'll get the tax rebate in the new year)

2.  What's the downside for the company in allowing you to use the full amount?  Does something come off their tax deductions?  Or is it just "we don't feel like doing paperwork"?

Toque.

ixtap

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Re: Company won't allow 401k catch-up contribution
« Reply #12 on: November 16, 2018, 11:49:45 AM »
I was withholding at a rate that would have gotten me close to the $24,500 max. Yes I'm over 50 years old.

In my last paycheck the 401k amount was only $112, which brought me to exactly $18,500 for the year.

I contacted HR about it and they said despite the federal catch-up provision it is company policy to restrict everyone to $18.5k.

My question:  is this legal for them to do?  Do I have any recourse?  I suspect it is to limit the amount of matching contribution, which is a meager 25% of the first 6%.

This throws a wrench in my tax planning.

Any advice is appreciated.



Can someone educate me on this one?

1.  If a company like yours won't do the max paycheque deduction at source, can you still use that leftover space yourself?  By directly depositing it into the account or some other 401k account?  Or are you screwed because your employer doesn't feel like it?  (In Canada, I don't know any employers who impose a limit like this, but I'm always able to walk into my bank, open an tax-free account and put money in it.  I'll get the tax rebate in the new year)

2.  What's the downside for the company in allowing you to use the full amount?  Does something come off their tax deductions?  Or is it just "we don't feel like doing paperwork"?

Toque.

1) 401k plans are 100% tied to your employer and you are subject to the terms your employer chooses when they set up the plan, which may be limited by the choices that the provider they choose offer. Like our healthcare being closely tied to employment, this creates obvious problems.

2) There are a number of different reasons. For example, if an employer does a dollar for dollar match, it behooves them to limit how much of their salary employees can contribute. In other cases, the administrator may charge more for certain benefits, so it isn't that the employer doesn't want to do paperwork, but rather that they don't want to pay the administrator to do more paperwork. In some cases, it seems the person setting it up looks at the options, can't imagine anyone ever using them, and chooses not to tick that box.

FrugalToque

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Re: Company won't allow 401k catch-up contribution
« Reply #13 on: November 16, 2018, 11:55:12 AM »
Can someone educate me on this one?

1.  If a company like yours won't do the max paycheque deduction at source, can you still use that leftover space yourself?  By directly depositing it into the account or some other 401k account?  Or are you screwed because your employer doesn't feel like it?  (In Canada, I don't know any employers who impose a limit like this, but I'm always able to walk into my bank, open an tax-free account and put money in it.  I'll get the tax rebate in the new year)

2.  What's the downside for the company in allowing you to use the full amount?  Does something come off their tax deductions?  Or is it just "we don't feel like doing paperwork"?

Toque.

1) 401k plans are 100% tied to your employer and you are subject to the terms your employer chooses when they set up the plan, which may be limited by the choices that the provider they choose offer. Like our healthcare being closely tied to employment, this creates obvious problems.

2) There are a number of different reasons. For example, if an employer does a dollar for dollar match, it behooves them to limit how much of their salary employees can contribute. In other cases, the administrator may charge more for certain benefits, so it isn't that the employer doesn't want to do paperwork, but rather that they don't want to pay the administrator to do more paperwork. In some cases, it seems the person setting it up looks at the options, can't imagine anyone ever using them, and chooses not to tick that box.

So if they don't want to let you use that space, you don't get to use it?

For our RRSPs here, the company can set up a plan and offer matching.  Anything they match, they can control (both my contribution and the corporate match) and therefore tells us where the money can go (i.e. offer dumb plans).
I had an employer offer 25% matching on 5% of my salary.  I kick in 5%, they add 1.25%.  All of that money had to go to a certain broker, and I could only choose from a list of 10 mutual funds.

However, Canadian law says I can put up to 18% of my previous year's salary into RRSPs, so I had a separate RRSP account and put the other 12%ish in there.  So what my employer felt like matching, or thought of my savings abilities, doesn't matter.

Toque.

terran

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Re: Company won't allow 401k catch-up contribution
« Reply #14 on: November 16, 2018, 12:13:35 PM »
Can someone educate me on this one?

1.  If a company like yours won't do the max paycheque deduction at source, can you still use that leftover space yourself?  By directly depositing it into the account or some other 401k account?  Or are you screwed because your employer doesn't feel like it?  (In Canada, I don't know any employers who impose a limit like this, but I'm always able to walk into my bank, open an tax-free account and put money in it.  I'll get the tax rebate in the new year)

2.  What's the downside for the company in allowing you to use the full amount?  Does something come off their tax deductions?  Or is it just "we don't feel like doing paperwork"?

Toque.

1) 401k plans are 100% tied to your employer and you are subject to the terms your employer chooses when they set up the plan, which may be limited by the choices that the provider they choose offer. Like our healthcare being closely tied to employment, this creates obvious problems.

2) There are a number of different reasons. For example, if an employer does a dollar for dollar match, it behooves them to limit how much of their salary employees can contribute. In other cases, the administrator may charge more for certain benefits, so it isn't that the employer doesn't want to do paperwork, but rather that they don't want to pay the administrator to do more paperwork. In some cases, it seems the person setting it up looks at the options, can't imagine anyone ever using them, and chooses not to tick that box.

So if they don't want to let you use that space, you don't get to use it?

For our RRSPs here, the company can set up a plan and offer matching.  Anything they match, they can control (both my contribution and the corporate match) and therefore tells us where the money can go (i.e. offer dumb plans).
I had an employer offer 25% matching on 5% of my salary.  I kick in 5%, they add 1.25%.  All of that money had to go to a certain broker, and I could only choose from a list of 10 mutual funds.

However, Canadian law says I can put up to 18% of my previous year's salary into RRSPs, so I had a separate RRSP account and put the other 12%ish in there.  So what my employer felt like matching, or thought of my savings abilities, doesn't matter.

Toque.

Nope, not how it works here. We do have IRAs which are (as the name Individual Retirement Account would suggest) individual plans independent of employer. "Anyone" (with certain income limitations) can contribute to those and then get a tax deduction if they're the tax deferred kind.

ixtap

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Re: Company won't allow 401k catch-up contribution
« Reply #15 on: November 16, 2018, 12:21:35 PM »
Can someone educate me on this one?

1.  If a company like yours won't do the max paycheque deduction at source, can you still use that leftover space yourself?  By directly depositing it into the account or some other 401k account?  Or are you screwed because your employer doesn't feel like it?  (In Canada, I don't know any employers who impose a limit like this, but I'm always able to walk into my bank, open an tax-free account and put money in it.  I'll get the tax rebate in the new year)

2.  What's the downside for the company in allowing you to use the full amount?  Does something come off their tax deductions?  Or is it just "we don't feel like doing paperwork"?

Toque.

1) 401k plans are 100% tied to your employer and you are subject to the terms your employer chooses when they set up the plan, which may be limited by the choices that the provider they choose offer. Like our healthcare being closely tied to employment, this creates obvious problems.

2) There are a number of different reasons. For example, if an employer does a dollar for dollar match, it behooves them to limit how much of their salary employees can contribute. In other cases, the administrator may charge more for certain benefits, so it isn't that the employer doesn't want to do paperwork, but rather that they don't want to pay the administrator to do more paperwork. In some cases, it seems the person setting it up looks at the options, can't imagine anyone ever using them, and chooses not to tick that box.

So if they don't want to let you use that space, you don't get to use it?

For our RRSPs here, the company can set up a plan and offer matching.  Anything they match, they can control (both my contribution and the corporate match) and therefore tells us where the money can go (i.e. offer dumb plans).
I had an employer offer 25% matching on 5% of my salary.  I kick in 5%, they add 1.25%.  All of that money had to go to a certain broker, and I could only choose from a list of 10 mutual funds.

However, Canadian law says I can put up to 18% of my previous year's salary into RRSPs, so I had a separate RRSP account and put the other 12%ish in there.  So what my employer felt like matching, or thought of my savings abilities, doesn't matter.

Toque.

Nope, not how it works here. We do have IRAs which are (as the name Individual Retirement Account would suggest) individual plans independent of employer. "Anyone" (with certain income limitations) can contribute to those and then get a tax deduction if they're the tax deferred kind.

At a whopping $6k limit for 2019, independent of salary, but with a catch up that is dependent on age.

401ks are funny. They were originally designed as a tax deferred way of compensating executives, then transformed into something that was meant to ensure that executives didn't benefit more than lesser paid employees. As such, the initial contribution limits back in the 70s and early 80s were higher dollar amounts than they are now, even with recent inflation adjustments.

Pizzabrewer

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Re: Company won't allow 401k catch-up contribution
« Reply #16 on: November 16, 2018, 12:23:36 PM »
(had always thought that this was by law).

That's what I thought.  I guess I was wrong.

Pizzabrewer

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Pizzabrewer

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Re: Company won't allow 401k catch-up contribution
« Reply #18 on: November 16, 2018, 12:26:10 PM »
Thanks for sharing this because I was completely unaware that it was up to the employer/provider to support catch-up contributions (had always thought that this was by law).

Some employers don't even allow all employees to contribute the full $18.5k, especially if they limit the percentage of base pay that can be contributed. The federal limits are maximums, there are a lot of variations by plan.

Which, IMHO, is pretty fucked up.  This is our retirement savings.  Why shouldn't all companies be required to comply with the federal regulations??  Particularly since, as outlined in the link matchewed provided, they wouldn't have to extend the matching contribution to the extra amount.  So it wouldn't cost them any extra.  Why not allow it?
« Last Edit: November 16, 2018, 12:31:56 PM by Pizzabrewer »

Mustache ride

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Re: Company won't allow 401k catch-up contribution
« Reply #19 on: November 16, 2018, 01:04:30 PM »
Thanks for sharing this because I was completely unaware that it was up to the employer/provider to support catch-up contributions (had always thought that this was by law).

Some employers don't even allow all employees to contribute the full $18.5k, especially if they limit the percentage of base pay that can be contributed. The federal limits are maximums, there are a lot of variations by plan.

Which, IMHO, is pretty fucked up.  This is our retirement savings.  Why shouldn't all companies be required to comply with the federal regulations??  Particularly since, as outlined in the link matchewed provided, they wouldn't have to extend the matching contribution to the extra amount.  So it wouldn't cost them any extra.  Why not allow it?

The federal regulation doesn't say that every person is entitled to a company 401k where they are allowed to contribute up to $18,500. The IRS states the maximum a person can contribute to a 401k is $18,500 tax free dollars. This is why companies are not obligated to even offer a 401k at all.

DS

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Re: Company won't allow 401k catch-up contribution
« Reply #20 on: November 16, 2018, 01:14:16 PM »
While I don't agree with it, they probably would rather limit the over 50's than fix all the over-contributions from under-50's

simonsez

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Re: Company won't allow 401k catch-up contribution
« Reply #21 on: November 16, 2018, 02:36:21 PM »
I wish there was a universal 401k option in the U.S. (or the solo 401k be expanded) that you could throw money into to cover gaps between what your employer offers in terms of the 401k and the IRS max.  It could be similar to the TSP.  This means the investment options would probably have to be somewhat limited to keep fees down but it would also have traditional and Roth options.  The combination of this universal account with the 401k would still obey the IRS maximums instead of being its own (like the 457).  This would help those out that only want to contribute up to the max match with employer and then still take advantage of the 18.5k or 24.5k threshold but do it in a place not governed by employer limitations or IRA contribution limits and income limits.

skiersailor

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Re: Company won't allow 401k catch-up contribution
« Reply #22 on: November 19, 2018, 09:57:19 AM »
Limiting 401(k) contributions may be a way to avoid a top-heavy plan.  If a plan becomes top-heavy (in which the combined balances of key employees are at least 60% of plan assets), the only remedy is for the company to contribute more money to non-key employees.  Even if the employee in question doesn't qualify as a key employee and their higher contributions would actually reduce the top-heavy measurement, the same rules apply to everyone in the plan.  You can't cap contributions only for key employees - the same cap applies to everyone.
« Last Edit: November 19, 2018, 09:59:20 AM by skiersailor »

TomTX

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Re: Company won't allow 401k catch-up contribution
« Reply #23 on: November 19, 2018, 12:58:15 PM »
If you had side-gig income, I suppose you could open a Solo 401k for the catchup contribution portion.

Pizzabrewer

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Re: Company won't allow 401k catch-up contribution
« Reply #24 on: November 21, 2018, 07:53:41 PM »
Update.  I've kept pestering HR and finally caught the attention of the Benefits Manager.  He allowed as how, yes, as a 50+ year old employee I am entitled to withhold $24.5k into my 401k.  He said it will take a couple of weeks to re-instate my withholding.  So I certainly won't get close to $24k for the year but at least it's something.

Apparently I'm the first person in the history of the company's 401k plan to want to withhold this much.  I was also the first person to ask if they'd consider sponsoring a HSA plan (there is a HDHP available but no HSA offered).  So I guess I'm the squeaky wheel.
« Last Edit: November 22, 2018, 04:59:51 AM by Pizzabrewer »

EricEng

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Re: Company won't allow 401k catch-up contribution
« Reply #25 on: November 21, 2018, 08:38:17 PM »
I was also the first person to ask if they'd consider sponsoring a HSA plan (there is a HDHP available but no HSA offered).  So I guess I'm the squeaky wheel.
You can open a HSA plan with many banks as long as you have a HDHP.  Don't need to involve work.  Unless they are matching or contributing, usually better doing it outside work anyway.

SwordGuy

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Re: Company won't allow 401k catch-up contribution
« Reply #26 on: November 21, 2018, 09:16:20 PM »
For other readers, this is a good example of why it is important to research your plan.

But what good does that do? It's not like most employees offer alternatives. You take what is offered.

Because some companies won't true up their match if you front-load your contributions during the year.  That's why.

TomTX

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Re: Company won't allow 401k catch-up contribution
« Reply #27 on: November 22, 2018, 04:38:48 AM »
I was also the first person to ask if they'd consider sponsoring a HSA plan (there is a HDHP available but no HSA offered).  So I guess I'm the squeaky wheel.
You can open a HSA plan with many banks as long as you have a HDHP.  Don't need to involve work.  Unless they are matching or contributing, usually better doing it outside work anyway.

May as well just open your own with Fidelity instead of whatever crappy-to-mediocre HSA provider your HR drones pick.

Pizzabrewer

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Re: Company won't allow 401k catch-up contribution
« Reply #28 on: January 10, 2019, 05:41:44 PM »
Update.  The net result of all this is that we will fall between the $38k and $41k savers credit cliffs.  So we'll lose the (potential)  50%/$2000 tax credit and instead will qualify for the 20%/$800 tax credit.

That sucks.

kendallf

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Re: Company won't allow 401k catch-up contribution
« Reply #29 on: January 10, 2019, 07:31:13 PM »
I was also the first person to ask if they'd consider sponsoring a HSA plan (there is a HDHP available but no HSA offered).  So I guess I'm the squeaky wheel.
You can open a HSA plan with many banks as long as you have a HDHP.  Don't need to involve work.  Unless they are matching or contributing, usually better doing it outside work anyway.

May as well just open your own with Fidelity instead of whatever crappy-to-mediocre HSA provider your HR drones pick.

One important benefit of having HSA contributions deducted from your pay is that these contributions are non-taxed, including FICA taxes.  If you contribute with post-tax dollars you'll get the income tax back when you file, but not the FICA.  So payroll deductions are effectively worth an extra 7.65%.

Rocketman

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Re: Company won't allow 401k catch-up contribution
« Reply #30 on: January 11, 2019, 12:57:34 PM »
My employer limits the 401k deduction to 25%.  So even though I do the full 25%, I canít get close to the 18,500 limit. Oh well...

TheAnonOne

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Re: Company won't allow 401k catch-up contribution
« Reply #31 on: January 11, 2019, 11:49:12 PM »
My employer limits the 401k deduction to 25%.  So even though I do the full 25%, I canít get close to the 18,500 limit. Oh well...

Same for my DW, it's been lame for the last 5 years, but after her recent raise she is nearly there.

Acastus

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Re: Company won't allow 401k catch-up contribution
« Reply #32 on: January 15, 2019, 11:31:23 AM »
My last company had a separate benefit to sign up for catch up contributions. Both regular and catch up had to be selected in 1% of salary increments, so it was easy to get wrong. And, yes, one of my coworkers messed it up and found himself with a bunch of 401(a) money instead of 401(k).

frugalnacho

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Re: Company won't allow 401k catch-up contribution
« Reply #33 on: January 15, 2019, 01:05:13 PM »
That sucks about your 401k.  Glad they (kinda) sorted it out, but it sucks you missed out on that tax advantaged space and are facing the savers credit cliff.

I was also the first person to ask if they'd consider sponsoring a HSA plan (there is a HDHP available but no HSA offered).  So I guess I'm the squeaky wheel.
You can open a HSA plan with many banks as long as you have a HDHP.  Don't need to involve work.  Unless they are matching or contributing, usually better doing it outside work anyway.

May as well just open your own with Fidelity instead of whatever crappy-to-mediocre HSA provider your HR drones pick.

One important benefit of having HSA contributions deducted from your pay is that these contributions are non-taxed, including FICA taxes.  If you contribute with post-tax dollars you'll get the income tax back when you file, but not the FICA.  So payroll deductions are effectively worth an extra 7.65%.

Yes the FICA savings are huge; absolutely go through your employer sponsored plan if they offer one.  If you really hate your company provided HSA you can always move the money out to an HSA provider of your own choosing after you reap the FICA savings via payroll deduction.

One caution is that having a high enough deductible to meet the HDHP threshold does not automatically qualify a plan as a HDHP.  If the plan pays out any benefits before you pay the full deductible then it's not a HDHP.  This can be in the form of offering a copay for dr visits or prescriptions before the deductible is met (which is what my plan does which disqualifies it as a HDHP).  I thought my plan at work was a HDHP that was HSA compliant and was going to open up my own HSA since my company doesn't provide one, but apparently not.


EricEng

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Re: Company won't allow 401k catch-up contribution
« Reply #34 on: January 15, 2019, 04:14:46 PM »
That sucks about your 401k.  Glad they (kinda) sorted it out, but it sucks you missed out on that tax advantaged space and are facing the savers credit cliff.

I was also the first person to ask if they'd consider sponsoring a HSA plan (there is a HDHP available but no HSA offered).  So I guess I'm the squeaky wheel.
You can open a HSA plan with many banks as long as you have a HDHP.  Don't need to involve work.  Unless they are matching or contributing, usually better doing it outside work anyway.

May as well just open your own with Fidelity instead of whatever crappy-to-mediocre HSA provider your HR drones pick.

One important benefit of having HSA contributions deducted from your pay is that these contributions are non-taxed, including FICA taxes.  If you contribute with post-tax dollars you'll get the income tax back when you file, but not the FICA.  So payroll deductions are effectively worth an extra 7.65%.

Yes the FICA savings are huge; absolutely go through your employer sponsored plan if they offer one.  If you really hate your company provided HSA you can always move the money out to an HSA provider of your own choosing after you reap the FICA savings via payroll deduction.
I'm kicking myself on this now.  I didn't realize there was a difference, so I paid out of pocket for 2019 because they over deducted in 2018 and created all kind of paperwork headaches in addition to fees.