Hello fellow Mustachians, First-time poster here. I will keep this short and to the point. I work for a Fortune 500 company and recently discovered something frustrating about my 401k policy, which until now I have found to be nothing but great. The policy has a 5% match and allows for after-tax contributions which can be converted in-plan to Roth 401k. However, I just discovered that my company caps the after tax contributions at $23,250. After talking to payroll, this is how they came up with that number:
"We determine the After-Tax limit with the following formula $57000-$19500-$14250 (maximum potential match based on IRS Compensation of $285,000*5% =$14250) = $23250 After Tax Limit"
This obviously favors the highly compensated, and puts those of us who make nowhere near $285k/yr at a disadvantage. It seems silly to me, and not that difficult to calculate the after tax contribution limit based on an employees ACTUAL compensation. When I asked why this is in place, they explained:
"The Plan Committee reviews and approves the After Tax limit on an annual basis. For administration purposes, the Committee has set a single after-tax contribution limit for all participants to minimize the risk of Plan IRS compliance issues."
Mustachians, is this normal for a Fortune 500 company to cap after tax contributions in such a manner that those of us who don't make anywhere near $285k/yr can never realize the full IRS 401k limit of $57000? If they can cap an employees after-tax contributions at $23250, why can't they cap their matching contributions such that the total employee+employer contribution (excluding employee pre-tax) of $57000-$19500=$37500 is not exceeded? Thanks!