Author Topic: Can Employer Cap Employees 401k Contribution Before Legal Limit?  (Read 2408 times)

2Birds1Stone

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Can Employer Cap Employees 401k Contribution Before Legal Limit?
« on: December 07, 2014, 08:38:14 AM »
At the job I just left, we were able to contribute between 1 and 80 % of our pay into 401k up to the legal limit of $17,500 for 2014, the company matched 50% of the first 3%.

New Employer sent benefits PDF and the 401k contributions state up to 20% of pay can be contributed and the company matches 50% of the first 5% after 1 year of service.....in my case at least in the first year this would not allow me to hit the $18,000 limit for 2015......This policy would mean anyone making less than $90,000 a year cannot max their 401k account out.

Is an employer allowed to do this?

Allen

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Re: Can Employer Cap Employees 401k Contribution Before Legal Limit?
« Reply #1 on: December 07, 2014, 01:04:39 PM »
Yes they can

Left

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Re: Can Employer Cap Employees 401k Contribution Before Legal Limit?
« Reply #2 on: December 07, 2014, 01:24:43 PM »
Mine tried to cap the % before, but I could put in any dollar amount so I just put $900/paycheck, once it hits the limit it stops taking contributions

I'm not sure why they won't allow you since they have no more out of pocket cost since they don't match that high but yes they can limit it.

2Birds1Stone

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Re: Can Employer Cap Employees 401k Contribution Before Legal Limit?
« Reply #3 on: December 08, 2014, 06:59:07 PM »
Welp, today was my first day with the new employer and they do indeed cap at 20% of base salary. Which makes me bad because I can only contribute 50% of the IRS imposed $18k limit for 2015.......I'm going to see if they would consider a change to the rules.

brooklynmoney

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Re: Can Employer Cap Employees 401k Contribution Before Legal Limit?
« Reply #4 on: December 08, 2014, 08:09:08 PM »
So I have run into this 2x. Once was similar to the other poster where there was a cap on contributions from highly compensated employees ie over 90K in salary.  My current company does not cap HCE contributions. And every year we fail the IRS' discrimination test, whereby HCEs are contributing a lot more than other employees, so I actually get a few thousand returned to me every year. It's my understanding that's why those caps are in place. Here is info on the IRS website: http://www.irs.gov/Retirement-Plans/401k-Plan-Fix-It-Guide-The-Plan-Failed-The-401k-ADP-and-ACP-Nondiscrimination-Tests

MikeBear

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Re: Can Employer Cap Employees 401k Contribution Before Legal Limit?
« Reply #5 on: December 08, 2014, 09:34:48 PM »
Welp, today was my first day with the new employer and they do indeed cap at 20% of base salary. Which makes me bad because I can only contribute 50% of the IRS imposed $18k limit for 2015.......I'm going to see if they would consider a change to the rules.

You can open and fund a regular deductible IRA to help make up for this. At least you'd get in another $5,500 packed away for retirement. That's better than nothing.

2Birds1Stone

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Re: Can Employer Cap Employees 401k Contribution Before Legal Limit?
« Reply #6 on: December 09, 2014, 07:23:02 PM »
I already max our a Roth IRA so no regular IRA for me. I guess I just have to work on getting my Salary up to $90k+/yr.