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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: tetlee on March 30, 2016, 10:46:27 AM

Title: Why do some companies not allow or limit after tax 401k contributions?
Post by: tetlee on March 30, 2016, 10:46:27 AM

My company doesn't allow them and my wife is limited to 6%

Wondering if anyone know why it matters to the company?

Title: Re: Why do some companies not allow or limit after tax 401k contributions?
Post by: Vanguards and Lentils on March 30, 2016, 11:03:38 AM

The IRS thinks a company is "discriminating" against lower-income folks if the lower-compensated employees contribute, on average, a smaller percentage to their 401(k)s as the highly-compensated employees.

https://en.wikipedia.org/wiki/401(k)#Highly_compensated_employees_.28HCE.29 (https://en.wikipedia.org/wiki/401(k)#Highly_compensated_employees_.28HCE.29)

Title: Re: Why do some companies not allow or limit after tax 401k contributions?
Post by: tetlee on March 30, 2016, 11:29:32 AM

Interesting, thanks!

Title: Re: Why do some companies not allow or limit after tax 401k contributions?
Post by: Proud Foot on March 30, 2016, 01:37:22 PM

In addition to what supermatthew said, I would guess that after tax 401k contributions are not permitted because it would "increase cost" due to additional record keeping requirements.