I know there is a $ limit on what we can put back, but is there a percentage limit based on salary or company policy?
What do you mean by “put back”?
There is a limit that the IRS updates ever year. For 2017, the maximum you can defer into your 401(k) is $18,000, plus another $6,000 if you are age 50 or older. However, companies can limit that amount further – for example, to 10% of your compensation – so in this example if you earn less than $180,000 you couldn’t get the full $18,000 into your account.
VH,
Are you sure a company can limit the amount an individual can contribute?
I thought the company can only limit the amount they match.
I currently contribute at 50% but my employer only matches up to 5%.
My contributions will cease when I hit my max of $24,000.
@conmama yes a plan document can limit the amount you can put in, for example it may state that you can only put in up to 50% of your salary.
Without getting into the weeds, you can also be limited if you are considered an HCE(highly compensated employee). Each year 401k plans undergo non discrimination testing. There are certain numbers they have to reach of lower compensated employees participating compared to higher compensated employees. If those numbers aren’t reached the plan has a few options. 1) it returns money to the HCE, called return of excess. This is usually not popular because it can screw up taxes. 2) it can make the plan safe harbor. So everyone gets a contribution to pass the test. 3). An administrative limit is placed on HCE, say 3%. In those cases, there is usually a non qualified or deferred compnolan that the HCEs are allowed to contribute and they don’t have all the rules and restrictions that 401k plans have.
Well…teacher here. Believe me, I never earned $180,000 a year.
I contributed the MAX to my TSA every single year. So $18,000 and then $24,000 when I reached 50.
My DH does the same…and his income is not $180,000 either.
@VeryHappy maybe the operant word is “can”. Companies CAN limit…not they “must”.
If the company 401k plan has an after-tax contribution option then the absolute limit is 54K for 2017. Our company had that option but they also had a 25% of base salary limit so only very highly compensated employees could get to the absolute limit.
Thanks all, this answered my question!
Did you mean to say 24k instead of 54k? In 2017 the standard limit is 18k plus 6k for catch-up folks over 50 as noted earlier.
I am not offered, and therefore not familiar with after tax limits but, 24K is the pre-tax limit for over 50s
@anomander: $54,000 is correct. The $24,000 limit is the pretax limit, but some plans also permit employees to contribute on an after-tax basis as well. The combined total cannot exceed $54,000.
Is your employer matching up to 5% of your annual salary or matching up to 5% of each paycheck?
If they do it by paycheck, you could miss out on the employer match if you stop contributing part way through the year when you hit the max.
Depending on how much you make, the max after 50 you can contribute is $24, but with emplyer match, you could be nearer a $40k limit per year. And you may be able to do post tax, and/or nondeductible IRA of $6500.
catch up for those over 50
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions
Very important. At my employer, we had two plans and the employer would match up to 5% of your salary (not of your contribution) on each program. One plan was 5% per paycheck with no adjustment at the end of the year, and the other was 5% with a true-up at the end of the year. In order to max out, for the first plan you had to have a contribution from each paycheck.
I usually set it up so that the over 50 extra contribution was taken out early in the year, and then at the end of the year made sure at least 5% was left to contribute to that first plan because I would max out if I didn’t plan it well. The year I left that job in April, I was pouring tons into retirement before I left to get my full match.
Good point, @soccerguy315 . I get paid hourly so they match by paycheck but I am frontloading in case I decide to call it quits before the end of this year. I’ll have to play with the numbers but I suspect I’ll think it’s worth my peace of mind to leave that small bit behind.