Author Topic: Fully Funding 401k Question  (Read 1595 times)

ginjaninja

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Fully Funding 401k Question
« on: April 24, 2019, 08:28:51 AM »
Hi Mustache Community.

I am trying to get my 401k fully maxed by the end of June and I was wondering if this will impact my company match.  Currently the match is set up where I get 50% of 6% of my salary as a guaranteed match (effectively 3% total).  This is contributed on every paycheck.  At the end of the year they have the ability to match 100% of 6% and up to 100% of 7% depending on company performance that comes as a lump sum in February.

If I fully max my 401k in June will the guaranteed 3% stop on my paychecks because I am no longer contributing?  If it does stop will the remaining amount just be added to the lump sum in February or will I just lose out on the 3% for the last 6 months of the year?  I want to make sure I don't screw anything up by maxing early.

I have asked HR this as well but I wanted to see if anyone here has experience with this.  HR's response was "we don't usually get questions about reaching the IRS maximum so I will have to get back to you."

Thanks,
Ginja

TheHardenedInvestor

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Re: Fully Funding 401k Question
« Reply #1 on: April 24, 2019, 08:32:03 AM »
This is entirely dependent on your plan rules and your HR department should be able to tell you. The exact feature on your plan that you are describing is the “true-up” feature. If your plan has it then they will contribute the percentage match at the end of the year even if you maxed it out early. If your plan does not have a “true-up” feature then you will lose the company match. Make sure you check! My wife’s plan has it, and my plan does not. All just depends.

FIRE 20/20

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Re: Fully Funding 401k Question
« Reply #2 on: April 24, 2019, 09:56:50 AM »
Whatever the answer is, get it in writing. 

My company would not true up the contributions, so maxing it out early would cost me the match for the second half of the year.  If I were you, I would assume that would be the case until you have written confirmation to the contrary. 

However, your company's policy may be different.  Get the answer in writing. 

Car Jack

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Re: Fully Funding 401k Question
« Reply #3 on: April 24, 2019, 01:02:54 PM »
I know at my company, that would screw me.  The match is only given in pay periods where I contribute enough to get the match.  Getting to the max allowed by June (for me) would mean I'm giving up half the company match.  Around here, since bonuses and such are a big part of our compensation (and 401k comes out of them), lots of us are reminding each other in the 3rd quarter to be sure that there's at least enough to get the match in our last pay check of the year.

FireHiker

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Re: Fully Funding 401k Question
« Reply #4 on: April 24, 2019, 02:33:29 PM »
Definitely confirm with your company. We used to be able to fully fund early and still get the full year's worth of match, but they changed that two years ago. Now, if we don't contribute each check, we don't get the match. It's a pain in the butt.

catccc

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Re: Fully Funding 401k Question
« Reply #5 on: April 29, 2019, 09:57:14 AM »
LIke others said, it depends on your plan.  I missed out on about $200 of match last year because I finished funding in November.  Oops.  Not going to make that same mistake this year!

cangelosibrown

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Re: Fully Funding 401k Question
« Reply #6 on: April 30, 2019, 07:21:18 AM »
Yeah, that would screw me at my company too. My usual routine is to set my contribution reasonably high (~30%) the first few months of the year, then set it exactly at 5% for most of the year, then crank it up to 30% the last paycheck of the year to make sure I hit the exact max. Obviously this takes some calculations to get it right.

redhead84

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Re: Fully Funding 401k Question
« Reply #7 on: April 30, 2019, 09:47:09 AM »
This depends on your plan design. I'm fortunate that my plan continues to calculate and remit the match with each paycheck even after I hit the limit. My husband's employer only remits the matching contribution once per quarter, and they will contribute the full match as long as you've hit the minimum contribution to reach the full match during that quarter. We both have bonus payments - mine is paid in March while my husband's is paid in December. It makes it a little more challenging to monitor his contributions to ensure the full match.

My husband's plan is also non-qualified and frequently fails the non-discrimination testing so we don't know if he'll be able to max the 401k on any given year.

It is amazing to me how many different ways a 401K plan can be designed (frequently at the expense of the participants).

SaucyAussie

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Re: Fully Funding 401k Question
« Reply #8 on: April 30, 2019, 10:16:46 AM »
I went through the same thing with my HR dept and it took a ton of emails and explanation from me just to get them to understand the question.  Eventually they came back and said, "oh we do true-up" so I guess they asked someone with a clue. 

Still, I am not brave enough to test it so I make sure I contribute min 6% all year.  I have experienced true-up when reaching a different match threshold (eg 5 year = 6%, 10 year = 7%) during the year.  The don't increase the match mid year, but the following February a pro-rated amount is added to the account.

SaucyAussie

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Re: Fully Funding 401k Question
« Reply #9 on: April 30, 2019, 10:35:05 AM »
Here is the exact wording from from my plan, anybody want to have a crack at de-coding?

"Your Matching Contributions will be adjusted as needed each pay period to ensure that you receive the full match based on your year to date pay and Before-Tax and/or Roth Contributions."

My interpretation of that is that if I max out after 11 months, they will continue to match as if I was still contributing.

ginjaninja

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Re: Fully Funding 401k Question
« Reply #10 on: April 30, 2019, 11:43:56 AM »
This is the response that I recieved from HR:

Our 401(k) Plans calculate fixed employer matching contributions based upon annual deferrals and annual eligible compensation.  This means that an employee could continue to receive matching contributions after they have hit the $19K limit for 2019.   We do not match catch-up contributions. 
We call this additional fixed match calculation a “true-up.”  Each pay period ADP will calculate the maximum fixed match the employee should receive based upon the annual compensation and deferrals and provide additional match if more is due. 

Not every employee will see this additional match.  Many executives hit the maximum match for the year at the same time they hit the 401(k) limit so match and 401(k) stop at the same time.


I am going to clarify that this means if I fund to the IRS max early they will still true up during each pay period.

SaucyAussie

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Re: Fully Funding 401k Question
« Reply #11 on: April 30, 2019, 12:05:29 PM »
This is the response that I recieved from HR:

Our 401(k) Plans calculate fixed employer matching contributions based upon annual deferrals and annual eligible compensation.  This means that an employee could continue to receive matching contributions after they have hit the $19K limit for 2019.   We do not match catch-up contributions. 
We call this additional fixed match calculation a “true-up.”  Each pay period ADP will calculate the maximum fixed match the employee should receive based upon the annual compensation and deferrals and provide additional match if more is due. 

Not every employee will see this additional match.  Many executives hit the maximum match for the year at the same time they hit the 401(k) limit so match and 401(k) stop at the same time.


I am going to clarify that this means if I fund to the IRS max early they will still true up during each pay period.

This looks to be the same we my company does it, just worded differently.

birdman2003

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Re: Fully Funding 401k Question
« Reply #12 on: April 30, 2019, 12:19:51 PM »
My employer allows you to put 0% to 75% of each paycheck into your 401(k) but only the first 6% is matched.

If I hit the IRS max early, I still get my employer's matching contribution in any remaining paychecks as long as my contribution % is set to at least 6%.