<p>HELP!
DH works for a small company. As we are in our mid 50s we are trying to max out our 401Ks. Neither of us have a pension. He got an email over the weekend stating that since the employees earning less than half the average company salary didn’t contribute enough to their 401Ks, anyone who makes above that can’t contribute the max. They will now return some amount that was put in the 401K and we will have to pay taxes on that - more details to follow. I have never heard of such a thing! Is this true? How is it his fault what other people want to do with their retirement?</p>
<p>Yep. That’s the way they wrote the law so it was not just a shelter for the top dogs at companies. If they don’t get the lower level employees to contribute then the upper levels cannot contribute as much. There is a push to make contributing a negative checkoff instead of a positive one. That way you would have to opt out instead of opt in. Hoping that more people will stay in once they are signed up.</p>
<p>A lot people who are now 401(k) are gong to be shocked to find out that they are not going to retire like their parents did on a steady income. The concept of the 401(k) was that everyone’s money would keep growing and each person could do their own investing. Well we can see where that is heading. I’ve been hit with 3 major downturns in mine since I started. So despite the fact that I have been saving for over 30 years and maxing out for a long time, the money would not give me a return like a defined benefit plan would right now. And I don’t know what people are going to do that do not participate in the plans.</p>
<p>I believe that there are rules that the IRS has established that do require that contributions by higher-income employees are limited in cases where lower-income employees are not taking enough advantage of the plan. I suppose this is to make sure that the plan, however the match is designed, is not primarily for the benefit of the higher-level employees. Certainly, this is frustrating in your case. Perhaps the employer can somehow, in the future, adjust the match to make it more attractive to the lower-paid employees, and have some campaign to encourage them to enroll in the plan.
EDIT: cross-posted with previous poster</p>
<p>The match is minimal. DH is not a manager or such. I’m guessing this happened because many of the employees are hired on a project by project basis and he is one of the constants. I can’t see a time where we’ll ever be able to retire.</p>
<p>more info on the rules from [401k</a> compliance testing, 401k rules, 401k regulations and contributions, ERISA and 401(k) loans rules](<a href=“http://www.401k-easy.com/basics/]401k”>http://www.401k-easy.com/basics/)</p>
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<p>“I can’t see a time where we’ll ever be able to retire.”</p>
<p>I know it’s frustrating, but 401k is not the only way to save for retirements. You and DH should investigate IRA’s, Roth IRA’s and tax-deferred annuities. Annuities can get a bad rap for having high expense ratios, but my DH works for a non-profit that has fairly low-cost annuities (TIAA-CREF). I’m not trying to be a shill for his company - I think there are others out there as well (my parents have money with Thrivent, which I think is a non-profit affiliated with the Lutheran church).</p>
<p>My point is, just because you are limited in how much he can put into the 401k, doesn’t mean you can’t save for retirement. There are other options.</p>
<p>Yep, we’re limited also in the amount that we can put into our 401Ks. If you aren’t over income limits, you can fund Roth IRAs. You have to put after tax money in, but the gains will be tax free. </p>
<p>Or you can have taxable accounts funded with investments that don’t generate a lot of income or capital gains.</p>