Author Topic: "Maxing out 401k"  (Read 13216 times)

WillPen

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"Maxing out 401k"
« on: September 26, 2013, 12:01:02 PM »
Hi Everyone,

I read these forums pretty regularly but haven't made a post yet. I have a question for everyone. When I read posts here or on other sites, I often see references to "Maxing out" a 401k contribution.

I have always wondered: What does this mean? Up to the employee match? Or the $17,500 allowed per year?  It could actually mean either or, I guess.

I'm asking because I have been pressing hard to learn as much about financial planning and investing as I can. I got married a few months ago and have taken it upon myself to become our own adviser. I've found tons of fantastic resources in the way of blogs, forums, and books but have not been able to answer that question!

Thanks,

Will

Cromacster

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Re: "Maxing out 401k"
« Reply #1 on: September 26, 2013, 12:05:41 PM »
On these forums, always assume it means they contributed 17,500 unless they state otherwise.

matchewed

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Re: "Maxing out 401k"
« Reply #2 on: September 26, 2013, 12:07:54 PM »
Maxing your 401k would be to the federally allowed (17.5k) or plan allowed (perhaps your plan only allows a certain percentage of your money to be placed in and that percentage is lower than 17.5k) amount. The second scenario isn't really all that common as most plans have a high percentage cap (60% is mine).

How it is typically written if you are contributing to maximize your employer match and then moving onto other investments it would state - Contribute up to employer match.

Zaga

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Re: "Maxing out 401k"
« Reply #3 on: September 26, 2013, 12:51:14 PM »
Right, I'm one of the unlucky ones to have a 20% cap on what I can put into my 401-K.  Unfortunately this only gets me about halfway to the federal $17,500 limit.  So I am maxing out my 401-K but will be putting in less than $9K for 2013.  Ah well, it is what it is, in other ways the plan I'm on is pretty awesome.

Frankies Girl

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Re: "Maxing out 401k"
« Reply #4 on: September 26, 2013, 01:27:38 PM »
I just did this, and I absolutely meant I increased my personal contributions to the maximum allowed ($17,500). That's not counting my employer match.

WillPen

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Re: "Maxing out 401k"
« Reply #5 on: September 26, 2013, 01:50:26 PM »
I thought so too.. Thanks, everyone.

Now I'm trying to figure out if I have the fortitude to do that. My employer will allow me to cap my contributions at 30%, and I am currently contributing 10%.  Reaching that $17,500 limit will fall some where in between those two.

I should say that it is definitely doable for both me and my wife. We are just trying to build up additional cash right now.
« Last Edit: September 26, 2013, 01:54:45 PM by WillPen »

geekette

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Re: "Maxing out 401k"
« Reply #6 on: September 26, 2013, 02:21:18 PM »
For those of us who are 50+, it's $23,000 this year, not including the employer match.

Attar14

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Re: "Maxing out 401k"
« Reply #7 on: September 26, 2013, 06:35:53 PM »
I am new to investing ( and the forum for that matter ) and have been reading this thread but had a question about a post.  Is the $17,500 a max for 401k NOT including employer contributions or is this max including employer contributions? 

suntailedshadow

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Re: "Maxing out 401k"
« Reply #8 on: September 26, 2013, 06:36:06 PM »
Employers put % caps on contributions??!? My employers % cap is... 100%. They just won't let me put more than I earn in there! Bummer. I can't imagine having something like 20% max. That would have killed us this year as I got a raise in the middle of the year that enabled me to jack my % contributions up to about 47% until the end of the year to meet that 17.5k. Can someone explain why they would limit contributions like this? If they are not matching up that high... what do they stand to lose?

suntailedshadow

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Re: "Maxing out 401k"
« Reply #9 on: September 26, 2013, 06:38:34 PM »
I am new to investing ( and the forum for that matter ) and have been reading this thread but had a question about a post.  Is the $17,500 a max for 401k NOT including employer contributions or is this max including employer contributions?

Someone correct me if i'm wrong but I understand it as 17.5k of personal contributions. Therefore an employer match doesn't count towards that limit. The main difference being that you can't deduct what your employer puts into your account against your personal taxes, and that is one of the main reasons the limit is in place.

matchewed

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Re: "Maxing out 401k"
« Reply #10 on: September 26, 2013, 07:13:39 PM »
I am new to investing ( and the forum for that matter ) and have been reading this thread but had a question about a post.  Is the $17,500 a max for 401k NOT including employer contributions or is this max including employer contributions?

Not including.

Magnum666

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Re: "Maxing out 401k"
« Reply #11 on: September 27, 2013, 05:18:45 AM »
The $17.5k is only the employee contribution, though there is a limit to the total allowed including the employer match (I believe it's $51k) but it's so high you'd have to have an insanely generous employer match plus a really high salary.  I've never known anyone who's actually approached this but I guess they're out there.

GreenGuava

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Re: "Maxing out 401k"
« Reply #12 on: September 28, 2013, 10:56:46 AM »
The $17.5k is only the employee contribution, though there is a limit to the total allowed including the employer match (I believe it's $51k) but it's so high you'd have to have an insanely generous employer match plus a really high salary.  I've never known anyone who's actually approached this but I guess they're out there.

A friend of mine achieved this one year.

He was a programmer for a hedge fund and worked something like 80 hours a week.  They matched something like 2:1 on all 401(k) contributions.

ender

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Re: "Maxing out 401k"
« Reply #13 on: September 28, 2013, 11:26:49 AM »
Employers put % caps on contributions??!? My employers % cap is... 100%. They just won't let me put more than I earn in there! Bummer. I can't imagine having something like 20% max. That would have killed us this year as I got a raise in the middle of the year that enabled me to jack my % contributions up to about 47% until the end of the year to meet that 17.5k. Can someone explain why they would limit contributions like this? If they are not matching up that high... what do they stand to lose?

I think it's less than 100% since you pay FICA taxes on your income :)

suntailedshadow

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Re: "Maxing out 401k"
« Reply #14 on: September 29, 2013, 10:43:28 PM »
Employers put % caps on contributions??!? My employers % cap is... 100%. They just won't let me put more than I earn in there! Bummer. I can't imagine having something like 20% max. That would have killed us this year as I got a raise in the middle of the year that enabled me to jack my % contributions up to about 47% until the end of the year to meet that 17.5k. Can someone explain why they would limit contributions like this? If they are not matching up that high... what do they stand to lose?

I think it's less than 100% since you pay FICA taxes on your income :)

Thats true. However they let you choose what you want to put towards your 401k in a % amount and the max "100". So I have Zero idea what they would do if someone actually put 100% X-D  Probably just pull taxes and put the rest in.

vespito

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Re: "Maxing out 401k"
« Reply #15 on: September 30, 2013, 11:16:14 AM »
I never realized the employer match was not subject to the cap.  It makes sense why, I just never realized this.  Thanks to everyone who posted.  I guess I'll be adjusting my contributions to get to 17,500 on my own. Time to cut something else out...:)

Iron Mike Sharpe

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Re: "Maxing out 401k"
« Reply #16 on: September 30, 2013, 02:21:50 PM »
Yeah, my plan is a max 25%.  I'm not quite their yet.  But I'm at 22% and I'm fully funding a Roth IRA. 

Bea

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Re: "Maxing out 401k"
« Reply #17 on: September 30, 2013, 03:18:55 PM »
My question is can you contribute the 17.5k to a 401k and contribute the 5k each to an IRA? I don't even have this option just curious.

catccc

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Re: "Maxing out 401k"
« Reply #18 on: September 30, 2013, 04:11:44 PM »
Maxing to me always meant the govt. limit of 17.5K.  Yes, you can do this and max out your Roth.  I think the roth is now up to 5.5K.  So this year between my spouse and I, we will max out my 401K, and contribute the max to our Roths of 11K.  We did the 11K early in the year, and the 17.5 is coming out as the year goes on.

BTW, we are a one earner/income household, so my spouse doesn't have a employee retirement plan to contribute to.  But we can contribute to a spousal IRA.  Hooray for marriage!

grantmeaname

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Re: "Maxing out 401k"
« Reply #19 on: October 01, 2013, 05:13:57 PM »
Maxing to me always meant the govt. limit of 17.5K.  Yes, you can do this and max out your Roth.  I think the roth is now up to 5.5K.  So this year between my spouse and I, we will max out my 401K, and contribute the max to our Roths of 11K.  We did the 11K early in the year, and the 17.5 is coming out as the year goes on.

BTW, we are a one earner/income household, so my spouse doesn't have a employee retirement plan to contribute to.  But we can contribute to a spousal IRA.  Hooray for marriage!

Just to clarify, you can contribute up to $17,500 per spouse to a 401(k), and up to $5,500 per spouse to an IRA, no matter whether the IRA or 401(k) is traditional or Roth. You can contribute all that to a traditional 401(k) and a Roth IRA, a Roth and Roth, a traditional and a traditional, or some of each.

Rural

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Re: "Maxing out 401k"
« Reply #20 on: October 01, 2013, 06:48:02 PM »
Maxing to me always meant the govt. limit of 17.5K.  Yes, you can do this and max out your Roth.  I think the roth is now up to 5.5K.  So this year between my spouse and I, we will max out my 401K, and contribute the max to our Roths of 11K.  We did the 11K early in the year, and the 17.5 is coming out as the year goes on.

BTW, we are a one earner/income household, so my spouse doesn't have a employee retirement plan to contribute to.  But we can contribute to a spousal IRA.  Hooray for marriage!

Just to clarify, you can contribute up to $17,500 per spouse to a 401(k), and up to $5,500 per spouse to an IRA, no matter whether the IRA or 401(k) is traditional or Roth. You can contribute all that to a traditional 401(k) and a Roth IRA, a Roth and Roth, a traditional and a traditional, or some of each.

Furthermore, you can max out a 401(k)/ 403(b) and a 457 if your employer offers both, and an HSA on top of it. I have all three options. Now, if only I got paid that much...

eyePod

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Re: "Maxing out 401k"
« Reply #21 on: October 02, 2013, 06:01:19 AM »
Just to clarify, you can contribute up to $17,500 per spouse to a 401(k), and up to $5,500 per spouse to an IRA, no matter whether the IRA or 401(k) is traditional or Roth. You can contribute all that to a traditional 401(k) and a Roth IRA, a Roth and Roth, a traditional and a traditional, or some of each.

Wait, a sec, for the 401(k), don't both spouses need to have 401(k) plans to be able to contribute that amount? My wife only gets a stipend and doesn't have a 401(k) plan.  That doesn't mean that I can contribute $35,000 to my 401(k) plan...

grantmeaname

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Re: "Maxing out 401k"
« Reply #22 on: October 02, 2013, 06:15:09 AM »
Yes.

eyePod

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Re: "Maxing out 401k"
« Reply #23 on: October 02, 2013, 06:27:16 AM »
Yes.

I don't know what you are saying yes to!  I think you were answering the only actual question I asked, but I just want to make sure, so I'll rephrase it.

Does a spouse need to have a sponsored 401k plan to contribute the 17.5k?  It would not make sense to me that one spouse could put 35k away in their program because the other spouse does not have the option to.

There's individual 401k and sep IRAs for that, right?

grantmeaname

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Re: "Maxing out 401k"
« Reply #24 on: October 02, 2013, 06:32:39 AM »
No, SEPs are only for self-employed individuals, not stay at home spouses. Technically the contribution limit is the lesser of $17,500 and earned income, so a nonworking spouse can't put anything into a 401(k).

hoppy08520

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Re: "Maxing out 401k"
« Reply #25 on: October 05, 2013, 07:53:07 AM »
Just to clarify, you can contribute up to $17,500 per spouse to a 401(k), and up to $5,500 per spouse to an IRA, no matter whether the IRA or 401(k) is traditional or Roth. You can contribute all that to a traditional 401(k) and a Roth IRA, a Roth and Roth, a traditional and a traditional, or some of each.

Wait, a sec, for the 401(k), don't both spouses need to have 401(k) plans to be able to contribute that amount? My wife only gets a stipend and doesn't have a 401(k) plan.  That doesn't mean that I can contribute $35,000 to my 401(k) plan...
eyePod, as the other poster mentioned, the $17,500 contribution limit is per person per plan (under age 50. Age 50 and above can contribute a $5,000 additional "catch up" contribution).

But, your wife can contribute to a spousal IRA even if she has no ordinary income. She could do either Roth or Traditional depending on your total income.

So, you could collectively do:
* $17,500 to your 401(k)
* Employer match to your 401(k)
* Your IRA up to $5,500
* Her IRA up to $5,500

hoppy08520

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Re: "Maxing out 401k"
« Reply #26 on: October 05, 2013, 08:04:31 AM »
One other point that I haven't seen mentioned. Some 401(k) plans allow "after tax contributions" beyond the $17,500. In most cases, those same plans allow "in service rollovers" of the after tax contributions. You can roll these over to a traditional IRA, and then immediately convert it to a Roth IRA. This is a way to legally exceed the $5,500 annual cap on IRA contributions.

The sum of all 401(k) contributions (Roth 401(k), pre-tax 401(k), after-tax non-Roth 401(k), plus employer match to pre-tax 401(k)) may not exceed $51,000 for tax year 2013. Note that these are IRS maximums. Some 401(k) plans cap employee contributions at a percentage of their salary, but that's a 401(k) rule and not an IRS rule.

Here's an example, if your plan allows it:
$17,500 - "standard" employee contributions to pre-tax traditional 401(k)
$5,500 - employer match of pre-tax contributions to traditional 401(k)
$20,000 - "after tax" contributions to the 401(k). These contributions are in after-tax dollars (you could go up to $28,000 to hit the $51,000 max)

Next, you will do an "in service rollover" of just the $20,000 (plus any earnings) into a new traditional IRA that you set up just for this purpose. You many then convert that IRA into a Roth IRA.

See this for more:

http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/401(k)-Resource-Guide---Plan-Participants---Limitation-on-Elective-Deferrals

http://www.mrmoneymustache.com/forum/investor-alley/401k-after-tax-to-roth-conversion/

eyePod

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Re: "Maxing out 401k"
« Reply #27 on: October 05, 2013, 05:58:10 PM »
Just to clarify, you can contribute up to $17,500 per spouse to a 401(k), and up to $5,500 per spouse to an IRA, no matter whether the IRA or 401(k) is traditional or Roth. You can contribute all that to a traditional 401(k) and a Roth IRA, a Roth and Roth, a traditional and a traditional, or some of each.

Wait, a sec, for the 401(k), don't both spouses need to have 401(k) plans to be able to contribute that amount? My wife only gets a stipend and doesn't have a 401(k) plan.  That doesn't mean that I can contribute $35,000 to my 401(k) plan...
eyePod, as the other poster mentioned, the $17,500 contribution limit is per person per plan (under age 50. Age 50 and above can contribute a $5,000 additional "catch up" contribution).

But, your wife can contribute to a spousal IRA even if she has no ordinary income. She could do either Roth or Traditional depending on your total income.

So, you could collectively do:
* $17,500 to your 401(k)
* Employer match to your 401(k)
* Your IRA up to $5,500
* Her IRA up to $5,500

Great, this is EXACTLY what I believed; I just got confused with the wording above.  We've got the IRA's maxed, 401k is only about half way there.  We are getting the employer match though.  Slowly but surely moving towards maxing it up!

RobertBirnie

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Re: "Maxing out 401k"
« Reply #28 on: October 08, 2013, 12:18:14 AM »
Furthermore, you can max out a 401(k)/ 403(b) and a 457 if your employer offers both, and an HSA on top of it. I have all three options. Now, if only I got paid that much...

403(b) and 401(k) are the same limits. You can only have 17,500 combined. They don't count toward the 457 limit though. http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---403(b)-Contribution-Limits

Also, be careful on your IRA income limits. If you can get a 401k through work then the limits are married/joint income of $95,000 or less to deduct for a Traditional IRA and married/joint income of less than $178,000 in order to put any money into a Roth IRA.

http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits

Rural

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Re: "Maxing out 401k"
« Reply #29 on: October 08, 2013, 07:08:53 PM »
Furthermore, you can max out a 401(k)/ 403(b) and a 457 if your employer offers both, and an HSA on top of it. I have all three options. Now, if only I got paid that much...

403(b) and 401(k) are the same limits. You can only have 17,500 combined. They don't count toward the 457 limit though. http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---403(b)-Contribution-Limits

Also, be careful on your IRA income limits. If you can get a 401k through work then the limits are married/joint income of $95,000 or less to deduct for a Traditional IRA and married/joint income of less than $178,000 in order to put any money into a Roth IRA.

http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits

That's what I meant, $17500 x2, not x 3. I see now how that could be misread, sorry.

Not that I have any worries about the max income levels :-(, but they don't affect HSA, just IRA, and the HSA, if you have one available, is on top of the $17500 x 2.

RobertBirnie

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Re: "Maxing out 401k"
« Reply #30 on: October 08, 2013, 07:14:54 PM »
Furthermore, you can max out a 401(k)/ 403(b) and a 457 if your employer offers both, and an HSA on top of it. I have all three options. Now, if only I got paid that much...

403(b) and 401(k) are the same limits. You can only have 17,500 combined. They don't count toward the 457 limit though. http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---403(b)-Contribution-Limits

Also, be careful on your IRA income limits. If you can get a 401k through work then the limits are married/joint income of $95,000 or less to deduct for a Traditional IRA and married/joint income of less than $178,000 in order to put any money into a Roth IRA.

http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits

That's what I meant, $17500 x2, not x 3. I see now how that could be misread, sorry.

Not that I have any worries about the max income levels :-(, but they don't affect HSA, just IRA, and the HSA, if you have one available, is on top of the $17500 x 2.

I was 90% sure thats what you meant but thought the IRS links would be helpful to others. I sooo wish my work had an HSA, maybe one of these days we'll get one.