The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: ender on September 13, 2014, 08:37:25 AM
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Totally hypothetical situation I've been curious about.
Let's say you make $100k a year, your company matches 10% into your 401k. You contribute the maximum, so you have a total of $17.5k + $10k = $27.5k total contributions. Total employee/employer contributions allowed is way higher, something like $50k, but most of us never hit that point.
Is there any reason a company couldn't do something like offering:
- $90k salary plus $11k additional 401k match (on top of the 10% matching), total of $37.5k
This seems totally legal, as long as you aren't a HCE, but I don't think I've ever heard of this strategy. For people well into the 25% tax bracket and in high tax states (like CA/NY) this seems like it'd be a great arrangement to save a lot on taxes but cost the company the same.
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I really like this question. Standing by for someone smarter to let us know the answer!
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My last company did a 15% across the board contribution. In my exit interview with our head of finance, I pointed out that although it was a great benefit, I would have rather had more money to pay my student loans. He told me he agreed but there were more older people than young at our company and he wasn't allowed to give different contributions to different employees. I don't know how much truth there was to this, but that's what I was told.
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All 401(k)s have a plan document that governs their implementation. These plans apply to all employees so it's essentially not possible to make individual deals regarding matching and employer contributions. The reason is to ensure fairness across the implementation.
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All 401(k)s have a plan document that governs their implementation. These plans apply to all employees so it's essentially not possible to make individual deals regarding matching and employer contributions. The reason is to ensure fairness across the implementation.
Sent from my iPhone using Tapatalk
Correct. Not allowed for a 401k. But there are other incentive packages companies offer. Stock purchase plans, etc.
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I posted about this back in April here:
http://forum.mrmoneymustache.com/index.php?topic=17026.msg273978#msg273978
If you have a safe harbor plan this is possible, even for HCE's. There are discrimination tests that must be done by the TPA of your plan, but it can be done if you have the right plan documents and management/ownership is cool with it. If you are going to document this, it should not be labeled as "taking a 401K contribution in lieu of a wage" because that is not so much kosher. But, your total compensation package can be a combination of various items, 401K plan contributions included.
Certain plans will be very rigid. 3% match and that's it. 5% match and that's it, no exceptions. A safe harbor contribution is a gateway for the employer to make whatever contributions they choose (within the limits) and it also prevents HCEs from having their $17,500 limit reduced by employees choosing to make $0 contributions. I think safe harbors are going to become more prevalent because of this, but maybe not since they require that 3% employer contribution no matter what the employee does.
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Cheddar safe harbor does not have to be necessarily a mandatory 3% contribution, it can also be a match.
Regardless, your points are what sinks this ship for me - my 401k does not qualify as an eligible 401k plan.
That being said, I am having an email conversation with our plan administrator, who I suspect is likely to be receptive to any suggestions I have - are there any other changes I should suggest? Our plan has ridiculously low expense ratios and great funds, so that's not really a problem. Are there other benefits I could ask for?
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I don't know all the safe harbor rules, but my understanding is you must provide some sort of contribution to qualify. I guess it could be a match rather than a 3% wage dump, I just know our plan well. Regardless, the safe harbor opens up doors.
I can't think of anything else you should ask for, other than maybe to sit in on your next 401K administrative meeting. You could ask these questions directly to your 401K provider and get the skinny on what might be possible to defer more. I don't know what you do, or what position you're in, but maybe showing that initiative could be a good thing at work as well? Or maybe not?