Author Topic: 401k, between a Rock and a Hard Place  (Read 2426 times)

FIRE me

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401k, between a Rock and a Hard Place
« on: October 20, 2015, 10:00:42 AM »
I'd like to top out my 401k contribution this year at $24,000. But I don't want to top out before December 31st (which actually is a pay day) because then I would lose my 4% employer match.

Unfortunately, my employer does not “true up” matching funds at year end, so the match would be truly lost if I reached $24,000 before year end.

On the other hand, of course, if I don't reach the top out of $24k, I have left tax advantaged money unclaimed.

I would be able to calculate the correct percentage to reach 24k at year end, but I am subject to significant but unpredictable forced overtime.

This is further complicated by my employer taking anywhere from one to three pay periods to process my request for a contribution rate change.

The company my employer uses for 401k is Prudential.

So my questions are, assuming Prudential is willing, does 401k law  allow me to transfer funds from my checking account to my 401k to top it out? If so, must this be done before December 31st? Or can it be done in early January 2016 and still count as a 2015 contribution?

 

Cromacster

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Re: 401k, between a Rock and a Hard Place
« Reply #1 on: October 20, 2015, 10:46:30 AM »
Check with your employer about their policy, but...

Just go over. 

The Mega Backdoor Roth IRA

Some plans let you contribute beyond the limit, but it will be taxed as normal income.  Similar to a non-deductible traditonal IRA.  Do your research, but if the pieces all fit you can later convert these contributions to a Roth IRA.  Win.

So look into your companies policy.  Other than that, just plan to go over and not worry.

Proud Foot

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Re: 401k, between a Rock and a Hard Place
« Reply #2 on: October 20, 2015, 10:55:36 AM »
Does your company allow you to contribute a specific amount per paycheck rather than a percentage? If so, that wold be the easiest way to do it.  OR as Cromacster said, check your 401k plan and go over and do the Mega Backdoor Roth IRA.

FIRE me

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Re: 401k, between a Rock and a Hard Place
« Reply #3 on: October 20, 2015, 11:07:05 AM »
Check with your employer about their policy, but...

Just go over. 

The Mega Backdoor Roth IRA

Some plans let you contribute beyond the limit, but it will be taxed as normal income.  Similar to a non-deductible traditonal IRA.  Do your research, but if the pieces all fit you can later convert these contributions to a Roth IRA.  Win.

So look into your companies policy.  Other than that, just plan to go over and not worry.

Great idea, I had never thought of that.

That said, I had hoped to get close to the $24k @ December 31st target with a early December rate correction. So this is more of a squeeze every dollar situation. The amount involved will almost certainly be around $300 lost between potential match and tax savings.

FIRE me

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Re: 401k, between a Rock and a Hard Place
« Reply #4 on: October 20, 2015, 11:08:17 AM »
Does your company allow you to contribute a specific amount per paycheck rather than a percentage? If so, that wold be the easiest way to do it.  OR as Cromacster said, check your 401k plan and go over and do the Mega Backdoor Roth IRA.

Unfortunately for me, my employer does deductions by percentage only. I will double check that with HR to make sure that defined dollar amount contributions are not allowed.

catccc

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Re: 401k, between a Rock and a Hard Place
« Reply #5 on: October 20, 2015, 11:38:40 AM »
Another vote for just going over, or get into excel and play a bit with the percentages (with the intention of changing them mid year) to get as close as possible.  That's what I did.  I contributed a certain percentage for x pay periods, then switched it to another for x pay periods.  I think I got within $14 of the max, which was good enough for me.

MEJG

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Re: 401k, between a Rock and a Hard Place
« Reply #6 on: October 20, 2015, 11:52:37 AM »
Does your company allow you to contribute a specific amount per paycheck rather than a percentage? If so, that wold be the easiest way to do it.  OR as Cromacster said, check your 401k plan and go over and do the Mega Backdoor Roth IRA.

Unfortunately for me, my employer does deductions by percentage only. I will double check that with HR to make sure that defined dollar amount contributions are not allowed.

My husband's company SAID they only did percentages, but when we were close to maxing out they allowed us to nominate a dollar amount to the 401k for the last paycheck.  They do true up so we were focusing on getting maxed out as early as was reasonable for us this year.