Author Topic: 401k nuances?  (Read 3711 times)

unitsinc

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401k nuances?
« on: July 16, 2012, 03:16:58 PM »
I'm maxing out my 401k. ~17k a year. This is approximately 17% of my income, and that's how it works on my contribution page. I pick a percent, and that comes out of my check.

Now what if I just entered 50%. What would happen to the amount over 17k? I know it won't give me any special tax benefits, but would it just end up in the same 401k holdings? A different account?

It seems easier to do one large percent all to a 401k instead of x% to 17k in my 401k. x% to an IRA to 5k. Other x% to a normal brokerage account.

Thoughts?

tooqk4u22

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Re: 401k nuances?
« Reply #1 on: July 16, 2012, 03:28:52 PM »
Depends on the defaults of the platform.

For mine it would deduct 50% of each check until the limit is reached and stop at $17k unless I chose the option to have after-tax deductions.  So you make $100k and if you get paid every two weeks you would max out in 9 pay periods and then nothing would be deducted after that.

sol

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Re: 401k nuances?
« Reply #2 on: July 16, 2012, 03:39:35 PM »
Depends on the defaults of the platform.

For mine it would deduct 50% of each check until the limit is reached and stop at $17k unless I chose the option to have after-tax deductions.  So you make $100k and if you get paid every two weeks you would max out in 9 pay periods and then nothing would be deducted after that.
 

Mine works the same way. After hitting the annual limit it would stop taking contributions and I would lose any further matching funds.  The match is a fixed percent per pay period, not a fixed percent of annual salary. In order to get full match, I have to contribute up to the full match amount every pay period.

unitsinc

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Re: 401k nuances?
« Reply #3 on: July 16, 2012, 03:42:05 PM »
Depends on the defaults of the platform.

For mine it would deduct 50% of each check until the limit is reached and stop at $17k unless I chose the option to have after-tax deductions.  So you make $100k and if you get paid every two weeks you would max out in 9 pay periods and then nothing would be deducted after that.
 

Mine works the same way. After hitting the annual limit it would stop taking contributions and I would lose any further matching funds.  The match is a fixed percent per pay period, not a fixed percent of annual salary. In order to get full match, I have to contribute up to the full match amount every pay period.

Mine is not a match. It is simply a contribution from my employer. I suppose I need to contact my HR and find out exactly how it works. I want my free 3%. So if I have to scale my own back to get the free money I'd definitely go for that instead of getting cut off.

Now...if only my HR rep wasn't next to useless.

skyrefuge

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Re: 401k nuances?
« Reply #4 on: July 16, 2012, 03:57:31 PM »
What would happen to the amount over 17k?

Nothing would happen to it.  Most likely, your employer would stop stuffing money in your 401(k) account once you hit the 17k limit, and deliver it to you in your paycheck.  I think I have heard of (rare?) cases where the contributions don't automatically stop once the 17k limit is reached, but in that case the excess contributions still have to be yanked out of the 401(k) and returned to you at some point to correct the error, and then you have to pay the taxes (and perhaps even a penalty?)  I'm going to max out my contributions by next month, so I plan to get in touch with the benefits people at my company to see exactly what happens in our plan.

You most likely could contribute after-tax money to your 401(k) if you wanted to stuff more money in there, but you have to explicitly select that option, and I think it's pretty rare to find cases where it's obviously beneficial to do that.

The match is a fixed percent per pay period, not a fixed percent of annual salary. In order to get full match, I have to contribute up to the full match amount every pay period.

I've mentioned before that some plans (including at least one I participated in) do a true-up contribution to make up for the "penalty" that you pay in reduced matching funds when you hit the 401(k) max before the end of the year.  I don't know how common this is; it's another thing to ask your plan administrator about, but if your plan does it then you can go for an early max-out without worrying about leaving money on the table (though the true-up only comes after the end of the contribution year).

smalllife

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Re: 401k nuances?
« Reply #5 on: July 16, 2012, 08:46:02 PM »
All of the 401K plans I've come across limit contributions to the 17K limit - the programs do not let an employee contribute beyond that.  It's a programming and legal limit rather than a HR limit.