Author Topic: Quick help on understanding 401(a) limits?  (Read 2546 times)

phwadsworth

  • Stubble
  • **
  • Posts: 106
Quick help on understanding 401(a) limits?
« on: April 29, 2016, 09:20:43 AM »
My (usually strong) Google-Fu is not finding answers to a relatively simple question, does anyone here know about 401(a)s?  Namely, what are contribution limits for an employee with a 403(b), 401(a), and a 457?  DW has been offered a government job with all 3.  The official wording in the offer on the 401(a) is:
After one year of employment employer will contribute 3% of employee's annual compensation to the plan account each year, with an additional 5% match.  A six year graded vesting schedule grants 20% ownership after the second year, then 20% more each year

OK, so nothing will happen in the 401(a) in year 1.  We will max the 403(b) to $18,000.
In year 2 the employer will start putting 3% in there (sweet, free money!).  And, I think this says DW can contribute another 5% and they will match that dollar for dollar, right?  But, *I think* this means she would have to reduce her 403(b) contribution by 5% as the $18,000 limit is cumulative between the 403(b) and the 401(a)......right?  This is where Google is failing to find me a definitive answer.  I do know that the 401(a) has a total limit of $53,000 combined employer/employee.

Lastly, even with the possibly worse investment options in the 401(a), and the vesting schedule, it seems like a guaranteed 100% return (match) on that 5% contribution is a pretty sweet incentive.  right?

thanks.
« Last Edit: April 29, 2016, 09:26:13 AM by phwadsworth »

rubybeth

  • Handlebar Stache
  • *****
  • Posts: 1401
  • Location: Midwest
Re: Quick help on understanding 401(a) limits?
« Reply #1 on: April 29, 2016, 09:41:18 AM »
I am not at all familiar with 401a accounts. Maybe try this rabbit hole? http://www.investopedia.com/terms/1/401a-plan.asp

As for the other accounts, any reason you are choosing the 403b instead of the 457b? I vastly prefer the 457b option, assuming the investment options are good. The advantage of the 457b is that there's no penalty for withdrawals before age 59.5. It saves a lot of hassle for early retirees.

phwadsworth

  • Stubble
  • **
  • Posts: 106
Re: Quick help on understanding 401(a) limits?
« Reply #2 on: April 29, 2016, 09:45:01 AM »
oh, she will max out the 457 as well!  I don't think contributions to the 457 effect limits on any of the other accounts....right?

Regarding that investopedia link....I've read that one and tons of others.  None of them answer the question about 403(b) and 401(a) being cummulative or not, when the 401(a) contributions are voluntary.  The involuntary contributions, whether made by the employee or the employer, do not count towards the $18,000 total....that I do know.
« Last Edit: April 29, 2016, 09:49:01 AM by phwadsworth »

NoStacheOhio

  • Handlebar Stache
  • *****
  • Posts: 2143
  • Location: Cleveland
Re: Quick help on understanding 401(a) limits?
« Reply #3 on: April 29, 2016, 11:01:29 AM »
Obviously, every plan is different, but I'm unable to elect 401a contributions beyond what my employer puts in.

Miskatonic

  • 5 O'Clock Shadow
  • *
  • Posts: 57
Re: Quick help on understanding 401(a) limits?
« Reply #4 on: April 29, 2016, 04:02:44 PM »
Obviously, every plan is different, but I'm unable to elect 401a contributions beyond what my employer puts in.

Same here. 6% of my paycheck is automatically put in, my employer matches that, and that's all there is to it. I don't even get to choose how it's invested.

thd7t

  • Handlebar Stache
  • *****
  • Posts: 1297
Re: Quick help on understanding 401(a) limits?
« Reply #5 on: May 01, 2016, 08:36:52 AM »
This sounds like Virginia's state 401a (even if it's not, it will be similar). In that case, I think the 5% employee contribution is a cap. 401a's are a money purchase plan, not TDSP, so they typically have a cap.

SpareChange

  • Bristles
  • ***
  • Posts: 417
Re: Quick help on understanding 401(a) limits?
« Reply #6 on: May 01, 2016, 01:42:39 PM »
In the case of my plan, I contribute the annual 18k to the 403b and my employer puts its match portion into a 401a. The investment selections are same in each account. 

phwadsworth

  • Stubble
  • **
  • Posts: 106
Re: Quick help on understanding 401(a) limits?
« Reply #7 on: May 13, 2016, 06:48:03 AM »
HR finally got back to me about my questions, still they could only answer a few (and some incorrectly) and then they put me in touch with the financial adviser that sets up these systems for them.  I'm writing this out as much for me as anyone else, it's an odd system.  As that adviser told it to me it actually works this way:

- Employer puts 3% of salary* into 401(a) automatically.  ->  *salary is limited by the IRS to no more than $260,000/year in 2015.  So, it's not 3% of actual higher salary, bummer.

- Employee can contribute up to $18,000 into a 403(b).

- Employee can NOT contribute to 401(a), in this particular plan, though it is actually legal according to the IRS.

- Once employee contributes to 403(b), then the employer will match that money up to 5% of salary* ($260,000 limit) in the 401(a).  weird.

- The total amount contributed to 403(b), 401(a) [and 401(k) if there were one] is $53,000, but under this plan it's impossible to get there.

- Contributions to 403(b) can be pre- or post- tax, but 401(a) and 457 are both pre-tax.

- None of this affects contribution limits to the 457, which is also $18,000, and the 457 contribution does not count towards the $53,000 limit.

- Employee does get to control invest allocations in all the 401(a) [this is not always the case]

- So the total we will be able to put away under this particular plan is (.03*260,000)+(.05*260,000) =  $20,800 in 401(a) all "free" money.  $18,000 in 403(b) and $18,000 in 457.  Total = $56,800.  It's not the $98,000 I thought it was going to be, but it's not bad either.

401(a)'s and 457's are weird.