The company I work for was in the process of being sold. In January 2018, they switched from straight out 401k employer contribution plus pension, to only a 4% match when employee contributes 5% to 401k. I signed up to contribute the 5% and it has been reflected on my paystub as employee 401k contribution.
Fast forward to March 2018. Our company has been sold and I just got my first paycheck from the new company. My 401k contribution is listed under “401k catch-up” on my paystub. So there are now two categories - 401k (only YTD) and 401k catch-up (current and YTD).
I emailed the new HR and asked about this and they said:
“The 401(k) catch-up is just the type of plan that you’re in because you’re over the age of 50. It’s not different from a 401(k), it just allows you to contribute more each year to a 401(k).”
Is this true? Will it really not affect anything, particularly in regards to my son’s financial aid? I do understand that the voluntary 5% I am now contributing will be added back into my income. I am just concerned that somehow having money in two categories will affect something. Am I worrying for nothing? I will not be contributing anything extra. Should I ask them to move the money to the other category?
I’m not entirely clear on your concern, but the 401k catchup isn’t anything to be concerned about. Your HR person was correct that once you’re over 50 your contribution limit increases, however it all ends up in the same place - your 401k account. I’m not sure why the catchup is called out differently on your paycheck, but maybe it’s some IRS accounting thing or just application-specific for your payroll vendor (e.g. different hard-coded limits for the 2 different fields, vs. a hidden categorization flag based on age). Regardless, I don’t believe it’s anything to worry about with respect to your FA application.
I bet a tax person will pop in an give you a technical answer. But short answer is that all contributions are taxed the same and are treated the same. It is ONLY that over 50 people are allowed to put in more money. Same as the IRA catch up event. Can’t help you for the financial aid issue.
OP It makes no difference. Some 401k plans just use different nomenclature. We had one plan that kept the catch-up money in a different bucket. Some keep it all together.
My DH has buckets on his paystub for 401k and catch up contributions. They have different limits. DH’s 401k bucket applies to the regular limit, and catch up contributions go in the other. It’s just an accounting thing.
As far as FA goes, anything you currently contribute to a 401k is included as funds available to you to help pay for college. . So, if you are putting $20k in your 401k this year, FA puts that $ into the available pool of $ toards your EFC. The expectation is that you will reduce retirement contribs while paying for college. If reducing you contributions is not an option, you’ll need to squeeze blood out if other stones.
However, FA does not use 401k account balances as an available asset, so what you’ve already put into the plan in previous years doesn’t count towards EFC.
We had two different 401k programs, plus I could put in extra money in the catch-up. My employer matched 5% in each of the funds, but didn’t match the catch up at all. To further complicate it, one fund had a ‘true up’ at the end of the year, so if you had not stayed at an even 5% for each pay check it would even things out at the end of the year and still match the 5%. The other program didn’t have that so I had to make sure I stayed at an even 5% for each pay check and had enough left at the end of the year to get the 5% or I’d forfeit the match.
All was ‘money put into 401k’ at the end of the day.
It may matter to the overall company contribution as older (over 50) employees tend to make more and contribute more, so the company many be doing the accounting separately to show what highly compensated employees are contributing. No difference to you.
It’s a payroll thing. The regular “401(k) contribution” category probably has one limit programmed in the payroll system. During the year, the “bucket” of contributions aggregates how much you’ve contributed, so when you reach the annual maximum dollar amount you’re allowed to contribute, your contribution gets turned off.
Since those over age 50 can contribute a higher amount, the “catch-up 401(k) contribution” category is probably programmed to have the higher maximum. So if they’ve moved all your 401(k) contributions into the catch-up bucket, you can just keep on contributing until you hit the higher limit.
Yup, H started qualifying for catch-up contributions with his employer (fed govt) when he reached 50 as well. We tried to max out his contributions when we could keep expenses down, tho it was a struggle.
