Quick primer needed for son's new 401k

[Workinghard]

Hi Everyone,
I'm swamped and just got an email from my son. I know there's been a lot of posts on plans that allow after tax contributions but I don't have time to research them out. Can anyone help in getting off an answer to him?

"So with the new benefits package, Blank Company is doing a company match on contributions to our 401k. One of the new statements is "Employees may elect to contribute from 1%-25% of their base pay on a pretax and/or after-tax basis (combined not to exceed 25%) to the fund up to annual IRS limits. The company matches 50% of the first 8% of base pay the employee contributes each pay period."

So for someone like me, who is contributing 24% of my monthly pay for an annual total of 18240, what does that mean? Can I adjust my contributions down with the match from company to hit the 17.5k limit?"

I know he can't go over the 17,500 limit for his 401k but not sure about the after tax stuff.

[rocksinmyhead]

Not exactly sure if this is what you're/he's asking, but company match doesn't count towards the $17,500 limit. Does that help?

[Cheddar Stacker]

Not exactly sure if this is what you're/he's asking, but company match doesn't count towards the $17,500 limit. Does that help?

+1. It seems like that's what he's asking, but hard to know.

If he is contributing more than he is allowed, HR will likely cease contributions once he reaches the limit of $17,500 in 2014. Company match will be in addition to his 17,500. He should check to make sure maxing out early won't limit ER contributions though. Some places have strange rules on their matches.

The after tax contribution language likely refers to a Roth 401k.

[Workinghard]

Sorry for not being very clear. I know his maximum contribution limit is 17,500 for his 401(k) and that does not include his employer match. The employer can add the match on top of that limit.

I will ask him if the after tax contribution is a Roth 401(k)

[Franklin]

He should check to make sure maxing out early won't limit ER contributions though. Some places have strange rules on their matches.

+1 Cheddar, mine matches 50% of the first 6% EACH PAY CHECK.  Meaning that if I try to front-load my 17.5 as early as possible then I stand to lose some of my company match.

[Cheddar Stacker]

The company matches 50% of the first 8% of base pay the employee contributes each pay period."

And based on this line from the original post, this might be what he means.

If he wants to hit the limit exactly so he doesn't miss the ER match in the last few paychecks he should switch to 23%. $18,240/24%=76,000. $17,500/76,000=23.026%. $18,000/76,000=23.684%. Just make sure on the last paycheck he does both of these things:

1) Contributes at least 8% of his wage.
2) Reaches the annual limit.

[Workinghard]

I emailed him to  check on the match (if it's per paycheck) and to clarify if the after tax contribution is a Roth or an actual after tax contribution with a limit of 50K that could be rolled over to a Roth  later on.

Really though... if he's maxing his 401k, and (2) Roths after he gets married, the next thing might be to save money for a home 3-5 years from now.