Author Topic: 401k Max or just nearly max?  (Read 4043 times)

jo552006

  • Stubble
  • **
  • Posts: 140
401k Max or just nearly max?
« on: July 15, 2015, 10:47:56 AM »
How do people on the forum avoid going over the 401k contribution limits?  For instance if say 20% of your income put you at exactly the maximum contribution, do people put in 19.5% to avoid accidentally over-contributing?  Is there a way to get penny-accurate with contributions?  As I understand it, it's a % of income... Or is there a way I just specify, say $500 per pay period for X number of pay periods instead of a percentage?

ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 3057
  • Location: Emmaus, PA
Re: 401k Max or just nearly max?
« Reply #1 on: July 15, 2015, 10:49:27 AM »
Depends on your employer. They should cut you off when you hit the legal max, so your end-of-year paychecks would just be bigger.

NotJen

  • Bristles
  • ***
  • Posts: 494
Re: 401k Max or just nearly max?
« Reply #2 on: July 15, 2015, 10:55:41 AM »
How do people on the forum avoid going over the 401k contribution limits?  For instance if say 20% of your income put you at exactly the maximum contribution, do people put in 19.5% to avoid accidentally over-contributing?  Is there a way to get penny-accurate with contributions?  As I understand it, it's a % of income... Or is there a way I just specify, say $500 per pay period for X number of pay periods instead of a percentage?
My employer allows me to put in a fixed dollar amount or a percent.

$692 per pay period get me $8 under the limit (must enter a whole number), which is good enough for me.

dandarc

  • Magnum Stache
  • ******
  • Posts: 3681
  • Age: 37
Re: 401k Max or just nearly max?
« Reply #3 on: July 15, 2015, 10:59:15 AM »
Usually they cut you off when you hit the cap automatically.  And if you do wind up making excess contributions and catch it yourself, you can request a return of those contributions with any associated loss or gain.  If you do that by April 15th, it is penalty free.

http://finance.yahoo.com/news/over-contributed-ira-401-k-151500104.html

ZiziPB

  • Magnum Stache
  • ******
  • Posts: 3302
  • Location: The Other Side
Re: 401k Max or just nearly max?
« Reply #4 on: July 15, 2015, 11:01:21 AM »
It depends on how your 401k plan works.  Some will stop when you reach the IRS max, no additional action is needed.  Some will continue but anything over the IRS limit is from after tax dollars.  I don't know of any plan that would continue the contributions over $18K on before-tax basis. 

If your employer matches on a per paycheck basis, you want to make sure that you don't reach your max early and be cut off from the match for the rest of the year.  If that is the case, I would probably set my contribution at the next highest % (i.e. if $18K is 19.6%, then I would set my contribution at 20%).

RoseRelish

  • Stubble
  • **
  • Posts: 179
  • Age: 33
  • Location: Chicagoland
    • RoseRelish - Slow down and Enjoy Life
Re: 401k Max or just nearly max?
« Reply #5 on: July 15, 2015, 11:05:40 AM »
My employer automatically stops contributions/deductions when you hit the cap. Thus, no action is needed and no margin of safety required. Why not fund as early as possible and get bigger paychecks later in the year?

MDM

  • Walrus Stache
  • *******
  • Posts: 9853
Re: 401k Max or just nearly max?
« Reply #6 on: July 15, 2015, 12:00:48 PM »
My employer automatically stops contributions/deductions when you hit the cap. Thus, no action is needed and no margin of safety required. Why not fund as early as possible and get bigger paychecks later in the year?
Because, depending on the specifics of the employer's plan, you might not receive the full employer match if you do it that way.  E.g., see https://www.bogleheads.org/wiki/Employer_matching_contributions and/or google   401k true-up.

charis

  • Handlebar Stache
  • *****
  • Posts: 1825
Re: 401k Max or just nearly max?
« Reply #7 on: July 15, 2015, 12:09:27 PM »
My employer automatically stops contributions/deductions when you hit the cap. Thus, no action is needed and no margin of safety required. Why not fund as early as possible and get bigger paychecks later in the year?

Someone mentioned above that you don't want to fund early if the match is per paycheck.

mandy_2002

  • Bristles
  • ***
  • Posts: 292
Re: 401k Max or just nearly max?
« Reply #8 on: July 15, 2015, 12:27:21 PM »
My employer matches per paycheck, but if you contribute the max early in the year, at the end of the year, they calculate the months you missed your match and make a lump sum contribution. 

I put in a lot at the beginning of the year (25% to 40%, company max), then ramp down to single digits when my cost of living adder falls for the year to a rate that will invest until the last paycheck in December.  I know they do the above, but I fear the Dec. 15th changes that could remove that action for the year.  The company has a track record of making policy changes that will greatly benefit them and screw over the employees.  (They changed the ESPP purchase price calculation because the bottom of the crash in 2008 coincided with the calculation dates.  The policy was written extremely badly originally, but everyone assumed they would honor it since it was active up to the day the ESPP price was announced.  The rollout of the new policy was completed but not announced the day of the ESPP price announcement at 4X what it should have been.)

Roots&Wings

  • Handlebar Stache
  • *****
  • Posts: 1169
Re: 401k Max or just nearly max?
« Reply #9 on: July 15, 2015, 04:21:16 PM »
How do people on the forum avoid going over the 401k contribution limits? 

I get paid twice monthly and have $750 deducted per paycheck ($18k / 24 = $750). At my company, we (the employee) are responsible for ensuring we don't go over the IRS max.