Author Topic: Maximum 401k contribution?  (Read 3280 times)

releve

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Maximum 401k contribution?
« on: October 07, 2015, 07:56:31 PM »
What is the easiest way to calculate the maximum contribution I can make per paycheck to my 401k?

I only recently became eligible to make 401k contributions, and  I want to get as close to the yearly limit of $18,000 as I can before the end of the year so I set my contribution to the plan maximum of 90%, but talking to HR, I was told I needed to reduce my contribution since the 10% of my salary remaining might not be enough to cover deductions and taxes.  I'm pretty sure this isn't a common problem and I get the feeling that HR doesn't know how to deal with it, but is there any way to pay for those deductions without decreasing my contribution?

MDM

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Re: Maximum 401k contribution?
« Reply #1 on: October 07, 2015, 08:20:45 PM »
What is the easiest way to calculate the maximum contribution I can make per paycheck to my 401k?

I only recently became eligible to make 401k contributions, and  I want to get as close to the yearly limit of $18,000 as I can before the end of the year so I set my contribution to the plan maximum of 90%, but talking to HR, I was told I needed to reduce my contribution since the 10% of my salary remaining might not be enough to cover deductions and taxes.  I'm pretty sure this isn't a common problem and I get the feeling that HR doesn't know how to deal with it, but is there any way to pay for those deductions without decreasing my contribution?
You pay 6.2% for SS and 1.45% for Medicare on the gross amount, so 92.65% is the absolute maximum.  You may also have one or more of:
Pretax Health Ins.
Pretax Vision/Dental Ins.
Healthcare Flex Savings Acct. (FSA)
Daycare FSA
HSA
Pretax Commuter costs
ESPP
Union dues
Life/LTD Insurance

Those are often deducted as fixed amounts.

seattlecyclone

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Re: Maximum 401k contribution?
« Reply #2 on: October 07, 2015, 09:26:37 PM »
Look at your last paycheck to see what percentage was deducted for medical and any other non-tax stuff. Then add 7.65% for payroll taxes, plus a couple more percentage points for any federal and state withholding that would apply to the part of your salary that went to payroll taxes instead of the 401(k) (yes, that is a thing). I doubt you should have any trouble if you just set it to 80% and be done with it.

EAL

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Re: Maximum 401k contribution?
« Reply #3 on: October 08, 2015, 03:50:58 PM »
If you want to contribute more than your company will allow, you could start an IRA and separately save 5500 or 6500 more a year depending on your age.

releve

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Re: Maximum 401k contribution?
« Reply #4 on: October 09, 2015, 05:02:17 AM »
Quote
Then add 7.65% for payroll taxes

Where does the 7.65% come from? Is this on top of the 6.2% for SS and 1.45% for Medicare?

Gin1984

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Re: Maximum 401k contribution?
« Reply #5 on: October 09, 2015, 05:09:47 AM »
Quote
Then add 7.65% for payroll taxes

Where does the 7.65% come from? Is this on top of the 6.2% for SS and 1.45% for Medicare?
7.65 is SS and Medicare added together.

Jack

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Re: Maximum 401k contribution?
« Reply #6 on: October 09, 2015, 09:23:32 AM »
I'm in a similar situation, where I became eligible for my company's 401k October 1st and am contributing as much as possible between now and the end of the year. I set my contribution level at 99% (the max), and got my first paycheck with that arrangement today:

Quote from: payroll website
Check Date 10/09/2015 Net Pay 0

(I can't believe I'm so excited about not getting paid.) : D

It looks like the payroll processor deducted medicare, social security, and health insurance, then sent the entire remainder to the 401k (which is perfect). There was no federal or state tax withholding because the entire paycheck got allocated to pre-tax things, so there were no earnings to tax!

TL;DR: my job's payroll company handled it correctly. I see no reason why figuring the math should be your problem as an employee, rather than than theirs as accountants.

releve

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Re: Maximum 401k contribution?
« Reply #7 on: October 10, 2015, 03:00:19 PM »
Thanks for the help everyone!

Unfortunately, I live in a state that considers 401k contributions part of the taxable compensation, so I think I'm paying around 11% in taxes. I set my contribution level to 85% just to be safe, now all I have to do is convince the payroll department that I'll be fine without getting a weekly check for the rest of the year...

Proud Foot

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Re: Maximum 401k contribution?
« Reply #8 on: October 12, 2015, 10:28:45 AM »
Unfortunately, I live in a state that considers 401k contributions part of the taxable compensation

I have not heard of this before.  Do you know how that works once your start taking money from your 401k?

cheddarpie

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Re: Maximum 401k contribution?
« Reply #9 on: October 17, 2015, 02:41:24 PM »
I think this is probably more a reflection of my dysfunctional workplace than anything else, but last year I briefly had 100% of my paycheck going to 401k. My understanding is that it's a matter of what your employer's policy is. My old job wouldn't allow more than 50%.