Author Topic: Fun Math on Maxing 401(k)  (Read 7382 times)

Mgmny

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Fun Math on Maxing 401(k)
« on: June 20, 2017, 12:27:28 PM »
Hey gang!

So, I'm finally eligible to contribute to my companies 401(k) plan in November of this year (November 3rd or something like that). I make $55/hour, so if i don't take any time off (this would need to include thanksgiving, christmas, etc), i will be JUST short of hitting the $18k max.

I talked to my manager yesterday about this (because i'm a contractor, and my contract is in the process of being renewed - it originally ended in August), and she informed me that she thinks i am only eligible to start contributing in June or December - the "open enrollment" periods for their 401k, even though I become eligible per the plan document in November (1 year anniversary).

If i can't contribute until December 1, i asked if they could withhold my pay starting in November to dump it all in the 401k in December, and then keep contributing through the end of the year. They weren't sure they were allowed to do this. My only other thought is for me to take a "voluntary pay cut" for the next few months, then increase my salary by the amount i was cut by to hit the $18k with just November and December salary. This seems risky because i could take the pay cut until november/december, and then they could fire me and I would just be out the difference i was expecting, plus then i'd be giving my company an interest free loan on my potential 401k savings.

Anyone else have any suggestions or funny math to make this work? Can I make a 1-tim after-tax contributions to my 401k in December, but count them as before-tax on my income tax? Any math to make this work would be appreciated.

Cromacster

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Re: Fun Math on Maxing 401(k)
« Reply #1 on: June 20, 2017, 12:38:42 PM »
You can't do one time contributions to your 401(k) only through payroll deductions.  You might not be able to max it for the year, even if you contribute 100% for the time you are eligible.

Personally, I wouldn't mess with your income.  Just contribute what you can and max it next year.

Mgmny

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Re: Fun Math on Maxing 401(k)
« Reply #2 on: June 20, 2017, 01:03:36 PM »
You can't do one time contributions to your 401(k) only through payroll deductions.  You might not be able to max it for the year, even if you contribute 100% for the time you are eligible.

Personally, I wouldn't mess with your income.  Just contribute what you can and max it next year.

So, with that in mind, i might only be able to contribute like $7-8k for the month of December, so i would miss out on $10k of tax-free $$. There has got to be a way to make this work?

Mgmny

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Re: Fun Math on Maxing 401(k)
« Reply #3 on: June 20, 2017, 01:05:05 PM »
Contact your company's benefits department and state you want to contribute as much as possible to your 401k this year.  You may not get all 18k in, many companies don't make exceptions to their rules.  Expect them to think you're nuts, but it's worth a try anyways - good luck!

That's what I'm doing, and my contracting company is pretty small, so i don't think they encounter this very often. I want to make sure I have all the information available to me in the off-chance that our benefits administrator is "wrong" about what (s)he thinks is the case.

Scortius

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Re: Fun Math on Maxing 401(k)
« Reply #4 on: June 20, 2017, 01:54:58 PM »
Contact HR and just ask.  As for the open enrollment, usually that's just a period set aside where you can change your benefit elections.  Any new hires are usually allowed to set up their initial allocations immediately upon their start date.  Also, where I work, I can change my 401k rate any time I want, although I have to set other allocations (such as health insurance choices) during our annual open enrollment season.

Mgmny

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Re: Fun Math on Maxing 401(k)
« Reply #5 on: June 20, 2017, 01:55:50 PM »
You may have better luck in a small company because I think it will take some shenanigans to make it work.  A large company would not do it. 

A better route may be to request they just let you start contributing to the 401k right now.  The rule of eligibility is arbitrarily set by your company - many companies allow contributions and matching on day 1.  They may deny your request to be fair and implement the same rules for everyone, but if you're highly valued they may make an exception.

I read somewhere else on here that date to start contributing to 401k is built into the plan document, and can't be altered for exceptions, or there could be ERISA complications

MDM

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Re: Fun Math on Maxing 401(k)
« Reply #6 on: June 20, 2017, 07:34:06 PM »
I read somewhere else on here that date to start contributing to 401k is built into the plan document, and can't be altered for exceptions, or there could be ERISA complications
Speaking of the plan document - ask for a copy of your company's 401k "Summary Plan Description" then read it to find what you can and can't do.

You are correct that the company can't be "nice just to you" and has to follow the plan.  Sad to say, that doesn't mean HR actually knows what is in the plan.  I've found Megacorp's benefit department completely wrong on a couple of issues (supplemental wage withholding and HDHP family deductible limits), so you never know....

And they could change the plan. ;)

aboatguy

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Re: Fun Math on Maxing 401(k)
« Reply #7 on: June 20, 2017, 09:32:21 PM »
Last year my wife's company allowed me to send them a check for her payroll taxes so that we could max out her 401k and she works for a huge corporation.  Call your HR they may be able to work with you!

acanthurus

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Re: Fun Math on Maxing 401(k)
« Reply #8 on: June 20, 2017, 09:34:51 PM »
Were you employed as a contractor on a W2 basis through a third party company or as a 1099 employee direct? If 1099 open an SEP-IRA or Solo 401k and contribute the max.

Mgmny

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Re: Fun Math on Maxing 401(k)
« Reply #9 on: June 21, 2017, 05:13:36 AM »
Were you employed as a contractor on a W2 basis through a third party company or as a 1099 employee direct? If 1099 open an SEP-IRA or Solo 401k and contribute the max.

W2

Mgmny

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Re: Fun Math on Maxing 401(k)
« Reply #10 on: June 21, 2017, 10:54:18 AM »
JUST heard back from my manager at my recruiting company, and she learned that i'm not eligible to contribute "per federal law" (????) until their next enrollment period which isn't until January 2018 - meaning i can't contribute at all in 2017.

I asked for an adjustment in pay to compensate for losses on taxes,and they can't do anything (they are already below their "margins" on my contract, and they can't/won't ask the company for more money unless i've been there a year).

I feel like if i extend my contract i'm "losing" money that was previously on the table with the 401k that i was told would be available to me in November. I'm not a big fan of taking backwards steps in my career... What do i do? I have until tomorrow to get back to them because they have to submit budget requests by the end of the week, apparently...

What do i do?!

Mgmny

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Re: Fun Math on Maxing 401(k)
« Reply #11 on: June 21, 2017, 11:04:08 AM »
You're not actually losing any money, technically you're not able to save money by paying less taxes.

Do you like your job?  If you do and intend to stay, I would let this go.  If this is your biggest issue with the company, I'd say you've got it pretty good!

I get what you're saying, and that's why i'm posing the question: am i being too persnickety about this? I sort of am losing money because not only am i not saving the money, but assuming i invest the $18k after tax equivalent, i'll have to pay capital gains taxes as well, so that's a 10% loss as well.

Ocinfo

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Re: Fun Math on Maxing 401(k)
« Reply #12 on: June 21, 2017, 11:08:40 AM »
I had never heard of open enrollment for 401k. I've heard of not being able to participate for 6 months or 1 year after hire but then being eligible in the month or month after hitting required tenure. My employer does require contributing a small percentage when hired or you can't joint for 5 years. Most of the ones that I've seen that have start date delays don't have a vesting schedule so that's why they make you wait.


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MDM

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Re: Fun Math on Maxing 401(k)
« Reply #13 on: June 21, 2017, 11:23:00 AM »
JUST heard back from my manager at my recruiting company, and she learned that i'm not eligible to contribute "per federal law" (????)....
Ask "which law is that?" if you want to pursue this.

Again, even full-time benefits specialists at Megacorp make mistakes....

Mgmny

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Re: Fun Math on Maxing 401(k)
« Reply #14 on: June 21, 2017, 11:27:49 AM »
Thanks everyone. I called a couple people based on the plan document, and eventually went to the TPA that represents my company, and she confirmed that i would not be eligible to contribute until Jan 1 2018.

No HSA or 529 available to me either. Already on track to max out Roth IRA with $107 hitting that account weekly.

TomTX

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Re: Fun Math on Maxing 401(k)
« Reply #15 on: June 21, 2017, 04:48:54 PM »
JUST heard back from my manager at my recruiting company, and she learned that i'm not eligible to contribute "per federal law" (????) until their next enrollment period which isn't until January 2018 - meaning i can't contribute at all in 2017.

I asked for an adjustment in pay to compensate for losses on taxes,and they can't do anything (they are already below their "margins" on my contract, and they can't/won't ask the company for more money unless i've been there a year).

I feel like if i extend my contract i'm "losing" money that was previously on the table with the 401k that i was told would be available to me in November. I'm not a big fan of taking backwards steps in my career... What do i do? I have until tomorrow to get back to them because they have to submit budget requests by the end of the week, apparently...

What do i do?!

Stop asking your damn manager and follow the advice you are already given. Contact HR. Get the actual plan documents.

Mgmny

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Re: Fun Math on Maxing 401(k)
« Reply #16 on: June 21, 2017, 05:02:12 PM »
JUST heard back from my manager at my recruiting company, and she learned that i'm not eligible to contribute "per federal law" (????) until their next enrollment period which isn't until January 2018 - meaning i can't contribute at all in 2017.

I asked for an adjustment in pay to compensate for losses on taxes,and they can't do anything (they are already below their "margins" on my contract, and they can't/won't ask the company for more money unless i've been there a year).

I feel like if i extend my contract i'm "losing" money that was previously on the table with the 401k that i was told would be available to me in November. I'm not a big fan of taking backwards steps in my career... What do i do? I have until tomorrow to get back to them because they have to submit budget requests by the end of the week, apparently...

What do i do?!

Stop asking your damn manager and follow the advice you are already given. Contact HR. Get the actual plan documents.

I got the plan documents (worthless), and used that info to get in contact with the TPA who confirmed the same thing

MDM

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Re: Fun Math on Maxing 401(k)
« Reply #17 on: June 21, 2017, 05:23:46 PM »
I got the plan documents (worthless)....
Really?  Was is it the actual Summary Plan Description as described in any of summary plan description - Google Search, or some two page HR thing?

Mgmny

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Re: Fun Math on Maxing 401(k)
« Reply #18 on: June 21, 2017, 07:58:48 PM »
I got the plan documents (worthless)....
Really?  Was is it the actual Summary Plan Description as described in any of summary plan description - Google Search, or some two page HR thing?

It looked to be the official one, it showed all the funds, and some other random information (like who to call with questions, ownership of fund, legal stuff), but literally nothing on the contribution plan, so I called the company in charge of the plan, and they sent me to the TPA, and the account manager there helped me out with the info

COEE

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Re: Fun Math on Maxing 401(k)
« Reply #19 on: June 21, 2017, 08:21:27 PM »
Sounds like you didn't get the full plan documents.  The full plan documents are usually between 50-100 pages long - at least in my experience and goes over every little detail of the plan.

Mgmny

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Re: Fun Math on Maxing 401(k)
« Reply #20 on: June 22, 2017, 05:33:28 AM »
Ok, so I was finally sent another document which IS the plan summary document (16 pages compared to the original 8). Confirmed I'm not eligible until January 1.

It sorta sucks because I opted to contribute to a Roth IRA based on a conversation I had with my manager/recruiter due to box 13 on W2 being checked with "retirement plan" making a traditional IRA worthless. Now that box won't be checked meaning the traditional could save me money. Ay yi yi.

Also, to everyone complaining about me talking to my "manager" - I'm a contractor, so my "manager" isn't really a manager. She's more of a liaison between my contracting company and contracting client. I don't have any HR contacts at my contracting company, and she's my go to for anything about my contract or job.

Mgmny

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Re: Fun Math on Maxing 401(k)
« Reply #21 on: June 22, 2017, 05:39:37 AM »
Update: I decided to extend through the end of the year regardless of this 401k misinformation and lack of $$ increase. My job has a ton of flexibility, I like it, and it pays well, so I shouldn't complain too much I guess.


So I actually explained the concept of FIRE to my manager (she was trying to understand my goals because she didn't understand why I was having a hard time deciding if I wanted to extend or not because I like my projects, job, etc), and she was really apologetic that they misinformed me on my 401k prospects. I explained how great of a tool it is, and she said they're going to train their staff (account managers, recruiters) better on this concept so it doesn't happen again.

Better luck to me next year for 401k prospects I guess!!

MDM

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Re: Fun Math on Maxing 401(k)
« Reply #22 on: June 22, 2017, 06:27:34 AM »
...I opted to contribute to a Roth IRA based on a conversation I had with my manager/recruiter due to box 13 on W2 being checked with "retirement plan" making a traditional IRA worthless.
Worthless?  That would be true if, after making your desired traditional 401k contribution the marginal tax saving rate on a tIRA would be 0%.  Is that your situation?

Mgmny

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Re: Fun Math on Maxing 401(k)
« Reply #23 on: June 22, 2017, 06:32:53 AM »
...I opted to contribute to a Roth IRA based on a conversation I had with my manager/recruiter due to box 13 on W2 being checked with "retirement plan" making a traditional IRA worthless.
Worthless?  That would be true if, after making your desired traditional 401k contribution the marginal tax saving rate on a tIRA would be 0%.  Is that your situation?

No, my MAGI is over 120k filling joint, so I can't take a deduction

Heroes821

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Re: Fun Math on Maxing 401(k)
« Reply #24 on: June 22, 2017, 09:55:06 AM »
...I opted to contribute to a Roth IRA based on a conversation I had with my manager/recruiter due to box 13 on W2 being checked with "retirement plan" making a traditional IRA worthless.
Worthless?  That would be true if, after making your desired traditional 401k contribution the marginal tax saving rate on a tIRA would be 0%.  Is that your situation?

No, my MAGI is over 120k filling joint, so I can't take a deduction

https://www.irs.gov/retirement-plans/ira-deduction-limits

Regardless of income if you are not covered by a retirement plan at work your IRA contributions should be eligible for full deduction.

Does your wife work and is she covered or not covered by a retirement plan at her work?

https://www.irs.gov/retirement-plans/2017-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-not-covered-by-a-retirement-plan-at-work

If your spouse is employed and has a retirement plan at work AND your joint income is below $186,000. Then you get to deduct your full $5500 (more if your over 55) contribution to your Traditional IRA. Also if you are putting it in a Roth right now, you can always categorize it.

Mgmny

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Re: Fun Math on Maxing 401(k)
« Reply #25 on: June 22, 2017, 12:42:13 PM »
...I opted to contribute to a Roth IRA based on a conversation I had with my manager/recruiter due to box 13 on W2 being checked with "retirement plan" making a traditional IRA worthless.
Worthless?  That would be true if, after making your desired traditional 401k contribution the marginal tax saving rate on a tIRA would be 0%.  Is that your situation?

No, my MAGI is over 120k filling joint, so I can't take a deduction

https://www.irs.gov/retirement-plans/ira-deduction-limits

Regardless of income if you are not covered by a retirement plan at work your IRA contributions should be eligible for full deduction.


Does your wife work and is she covered or not covered by a retirement plan at her work?

https://www.irs.gov/retirement-plans/2017-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-not-covered-by-a-retirement-plan-at-work

If your spouse is employed and has a retirement plan at work AND your joint income is below $186,000. Then you get to deduct your full $5500 (more if your over 55) contribution to your Traditional IRA. Also if you are putting it in a Roth right now, you can always categorize it.

Right. That's the point. I was told i WOULD be covered by a retirement plan in 2017, and now i'm finding out that i won't be. That's the issue.

I might re-characterize it, like you mention.
« Last Edit: June 22, 2017, 12:44:06 PM by Mgmny »

Heroes821

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Re: Fun Math on Maxing 401(k)
« Reply #26 on: June 22, 2017, 01:23:10 PM »
I was replying mostly to your comment
[quote Mgmny]
No, my MAGI is over 120k filling joint, so I can't take a deduction
[/quote]

Since you won't be covered at work you should be good to go to deduct your IRA in full.