Author Topic: Workplace 401k only allows 50%... what to do?  (Read 3759 times)

effigy98

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Workplace 401k only allows 50%... what to do?
« on: September 22, 2016, 11:00:59 AM »
My wife is about to go part time to take care of the new baby. I went to adjust her 401k and TRowe caps the contribution limit to 50% of pay. I will not be able to max out her 401k next year because her pay will not be enough.We do not need her pay so I want to get every dime I can into tax advantage accounts as with my pay we are paying an insane tax rate. Should I open another account, say with vanguard, and funnel the difference to hit the limit there?
« Last Edit: September 22, 2016, 11:03:06 AM by effigy98 »

Paul der Krake

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Re: Workplace 401k only allows 50%... what to do?
« Reply #1 on: September 22, 2016, 11:17:38 AM »
The money has to come from your wife's paycheck and must go to the employer's plan. Unlike IRAs, you have no say in the choice of custodian.

Your options are:

1) Earn at least $36,000 per calendar year, allowing you to max the $18,000 at a the allowed 50% contribution rate
2) Lobby employer to raise the arbitrary limit. Depending on the employer this may be next to impossible because plans have to be carefully crafted to comply with labor laws
3) Find another employer whose plan does not have that restriction.

If that's any consolation, I have been in a somewhat similar situation and totally empathize. It sucks to think of all that tax-advantaged space going to waste.

bacchi

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Re: Workplace 401k only allows 50%... what to do?
« Reply #2 on: September 22, 2016, 11:20:28 AM »
Or she can change from W2 to an independent contractor. That would allow her to open a solo 401k and contribute the maximum.

mskyle

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Re: Workplace 401k only allows 50%... what to do?
« Reply #3 on: September 22, 2016, 11:56:36 AM »
Did you talk to someone about this or just try to do it online/via forms? If you haven't actually talked to a human, give it a try - talk to someone at T. Rowe Price and at your wife's work (or more likely have her talk to them, since it's her account). It might be possible to override.

Mother Fussbudget

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Re: Workplace 401k only allows 50%... what to do?
« Reply #4 on: September 22, 2016, 02:16:23 PM »
Did you talk to someone about this or just try to do it online/via forms? If you haven't actually talked to a human, give it a try - talk to someone at T. Rowe Price and at your wife's work (or more likely have her talk to them, since it's her account). It might be possible to override.
This. (above)

If it doesn't work, you can always open an IRA (Roth or T-IRA), and contribute after-tax money.

TomTX

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Re: Workplace 401k only allows 50%... what to do?
« Reply #5 on: September 25, 2016, 07:23:22 AM »
Did you talk to someone about this or just try to do it online/via forms? If you haven't actually talked to a human, give it a try - talk to someone at T. Rowe Price and at your wife's work (or more likely have her talk to them, since it's her account). It might be possible to override.
This. (above)

If it doesn't work, you can always open an IRA (Roth or T-IRA), and contribute after-tax money.

Yes. 50% may just be the automatic default, not a hard limit.

Getting the right person may be able to override.

ender

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Re: Workplace 401k only allows 50%... what to do?
« Reply #6 on: September 25, 2016, 08:54:15 AM »
My wife is about to go part time to take care of the new baby. I went to adjust her 401k and TRowe caps the contribution limit to 50% of pay. I will not be able to max out her 401k next year because her pay will not be enough.We do not need her pay so I want to get every dime I can into tax advantage accounts as with my pay we are paying an insane tax rate. Should I open another account, say with vanguard, and funnel the difference to hit the limit there?

Ask?

At a previous company, we had a limit of 50% and I mentioned this to the plan administrator as a frustration and relatively shortly afterwards they communicated an update to 75% for contribution limit.

RedmondStash

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Re: Workplace 401k only allows 50%... what to do?
« Reply #7 on: September 25, 2016, 08:42:02 PM »
You can also contribute $5,500 pre-tax dollars to an IRA for her, as long as that doesn't exceed the $18,000 limit. Even if she contributes to a 401k, you can contribute $5,500 a year, and I believe that if you're shy of that limit, you can make it up in a pre-tax IRA (instead of a post-tax ROTH).

So if she can contribute $12,500 to her 401k, she can still hit her annual limit of pre-tax retirement contributions.

MDM

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Re: Workplace 401k only allows 50%... what to do?
« Reply #8 on: September 25, 2016, 11:16:27 PM »
You can also contribute $5,500 pre-tax dollars to an IRA for her, as long as that doesn't exceed the $18,000 limit. Even if she contributes to a 401k, you can contribute $5,500 a year, and I believe that if you're shy of that limit, you can make it up in a pre-tax IRA (instead of a post-tax ROTH).

So if she can contribute $12,500 to her 401k, she can still hit her annual limit of pre-tax retirement contributions.

The $18K limit on 401k contributions is completely separate from the $5500 limit on IRA contributions.

frugalcoconut

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Re: Workplace 401k only allows 50%... what to do?
« Reply #9 on: September 26, 2016, 05:58:23 AM »
Is the dilemma only for 2016, or will it be for 2017 too if she continues to work part-time indefinitely?

How much is the shortfall for 2016 (since there's only a couple of months left to possibly make up for it) versus 2017 if applicable?

If there will still be a shortfall next year, is it possible for her to work a few more hours ... either consistently (every week) or during certain portions of the year (perhaps when there is more available childcare support from family who are visiting, etc.)?  Or is it possible for her to go back to full-time toward the latter part of next year or however soon will allow for maxing the 401k?

This year is tougher ... did she take time off already for maternity leave where, even if she did work full-time the rest of the year, she still wouldn't reach the $18K max contribution?  How many hours per week would she have to work for the rest of the year to reach the desired threshold?

Something's gotta give somewhere.  You might just need to let it go for this year due to the special circumstances.  Otherwise she will simply have to work more and you'd have to find alternative childcare arrangements.

RedmondStash

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Re: Workplace 401k only allows 50%... what to do?
« Reply #10 on: September 26, 2016, 08:49:23 AM »
You can also contribute $5,500 pre-tax dollars to an IRA for her, as long as that doesn't exceed the $18,000 limit. Even if she contributes to a 401k, you can contribute $5,500 a year, and I believe that if you're shy of that limit, you can make it up in a pre-tax IRA (instead of a post-tax ROTH).

So if she can contribute $12,500 to her 401k, she can still hit her annual limit of pre-tax retirement contributions.

The $18K limit on 401k contributions is completely separate from the $5500 limit on IRA contributions.

In a way, yes, in that the contributions go into different types of accounts and through different means (employer vs. self). But the $18k limit is for pre-tax contributions, so if you only contribute $10k to your 401k, you can put all $5,500 toward a pre-tax IRA. If instead you contribute $18k to your 401k, you can still contribute $5,500 a year to a retirement account, but it will be taxed, so it might as well go into a ROTH IRA instead of a regular IRA.

MDM

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Re: Workplace 401k only allows 50%... what to do?
« Reply #11 on: September 26, 2016, 09:10:46 AM »
If instead you contribute $18k to your 401k, you can still contribute $5,500 a year to a retirement account, but it will be taxed...

That statement is wrong.  You might want to improve your understanding....

You may deduct $18K of 401k contributions, plus (assuming you meet the MAGI criteria) $5500 of tIRA contributions.

charis

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Re: Workplace 401k only allows 50%... what to do?
« Reply #12 on: September 26, 2016, 09:18:05 AM »
You can also contribute $5,500 pre-tax dollars to an IRA for her, as long as that doesn't exceed the $18,000 limit. Even if she contributes to a 401k, you can contribute $5,500 a year, and I believe that if you're shy of that limit, you can make it up in a pre-tax IRA (instead of a post-tax ROTH).

So if she can contribute $12,500 to her 401k, she can still hit her annual limit of pre-tax retirement contributions.

The $18K limit on 401k contributions is completely separate from the $5500 limit on IRA contributions.

In a way, yes, in that the contributions go into different types of accounts and through different means (employer vs. self). But the $18k limit is for pre-tax contributions, so if you only contribute $10k to your 401k, you can put all $5,500 toward a pre-tax IRA. If instead you contribute $18k to your 401k, you can still contribute $5,500 a year to a retirement account, but it will be taxed, so it might as well go into a ROTH IRA instead of a regular IRA.

No, that poster was pointing out that these two vehicles are completely separate - as in the contribution limit for an IRA, traditional or otherwise, has no connection to the 401K limit, and 

You may deduct $18K of 401k contributions, plus (assuming you meet the MAGI criteria) $5500 of tIRA contributions.

RedmondStash

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Re: Workplace 401k only allows 50%... what to do?
« Reply #13 on: September 26, 2016, 05:23:44 PM »
If instead you contribute $18k to your 401k, you can still contribute $5,500 a year to a retirement account, but it will be taxed...

That statement is wrong.  You might want to improve your understanding....

You may deduct $18K of 401k contributions, plus (assuming you meet the MAGI criteria) $5500 of tIRA contributions.

That assumption is not necessarily correct. So it's true for some people that you cannot contribute $5500 to a traditional IRA after maxing out a 401k, and for others, you can, depending on income levels.

In the OP's case, they might be able to do both. Again, though, it depends.

MDM

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Re: Workplace 401k only allows 50%... what to do?
« Reply #14 on: September 26, 2016, 05:42:22 PM »
If instead you contribute $18k to your 401k, you can still contribute $5,500 a year to a retirement account, but it will be taxed...

That statement is wrong.  You might want to improve your understanding....

You may deduct $18K of 401k contributions, plus (assuming you meet the MAGI criteria) $5500 of tIRA contributions.

That assumption is not necessarily correct.

Yes, that's why it's called an assumption and not a fact. ;)

Do you agree that "If instead you contribute $18k to your 401k, you can still contribute $5,500 a year to a retirement account, but it will be taxed and it's deductibility will depend on your MAGI" is correct?


RedmondStash

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Re: Workplace 401k only allows 50%... what to do?
« Reply #15 on: September 26, 2016, 05:44:12 PM »
If instead you contribute $18k to your 401k, you can still contribute $5,500 a year to a retirement account, but it will be taxed...

That statement is wrong.  You might want to improve your understanding....

You may deduct $18K of 401k contributions, plus (assuming you meet the MAGI criteria) $5500 of tIRA contributions.

That assumption is not necessarily correct.

Yes, that's why it's called an assumption and not a fact. ;)

Do you agree that "If instead you contribute $18k to your 401k, you can still contribute $5,500 a year to a retirement account, but it will be taxed and it's deductibility will depend on your MAGI" is correct?

Yes, I'd agree to that. I think we have a deal. :)

MDM

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Re: Workplace 401k only allows 50%... what to do?
« Reply #16 on: September 26, 2016, 05:54:02 PM »
Yes, I'd agree to that. I think we have a deal. :)
Cheers!

MrRealEstate

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Re: Workplace 401k only allows 50%... what to do?
« Reply #17 on: September 27, 2016, 02:59:29 AM »
Did you talk to someone about this or just try to do it online/via forms? If you haven't actually talked to a human, give it a try - talk to someone at T. Rowe Price and at your wife's work (or more likely have her talk to them, since it's her account). It might be possible to override.
This. (above)

If it doesn't work, you can always open an IRA (Roth or T-IRA), and contribute after-tax money.

Yes. 50% may just be the automatic default, not a hard limit.

Getting the right person may be able to override.


My employer uses Fidelity Net Benefit and has a 75% percent contribution limit. It's an international company so I don't think increasing the contribution limit should violate any labor laws.