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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76387  
Subject: 401k Max Date: 12/16/2005 3:57 PM
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Simple question, how much, in number of dollars, can I contribute to my 401k next year?

Thanks
-murray
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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48969 of 76387
Subject: Re: 401k Max Date: 12/16/2005 4:03 PM
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Simple question, how much, in number of dollars, can I contribute to my 401k next year?

$15K. Also, there is a $5K catch-up max if you are 50+.

For more information, I think Yahoo has a pretty good site: http://planning.yahoo.com/rules.html

Acme

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48970 of 76387
Subject: Re: 401k Max Date: 12/16/2005 4:26 PM
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But that is only the pretax contribution limit. The total sum of pretax and aftertax limit is higher. It varies with the plan, but 15 to 25% of gross income is typical.

Of course, Fools think pretax is the best plan. Aftertax is a bit more iffy, but those contributions too can be rolled over to an IRA and converted to a Roth (eventually after you leave your present employer).

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48971 of 76387
Subject: Re: 401k Max Date: 12/16/2005 4:30 PM
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But that is only the pretax contribution limit. The total sum of pretax and aftertax limit is higher.

True. I was not explicit...

Acme

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Author: DrTarr Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48974 of 76387
Subject: Re: 401k Max Date: 12/16/2005 4:41 PM
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$15K. Also, there is a $5K catch-up max if you are 50+.
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And if the company allows catch up contributions???

DrTarr

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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48975 of 76387
Subject: Re: 401k Max Date: 12/16/2005 6:18 PM
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But that is only the pretax contribution limit.

Thanks for pointing that out, I ment pretax only.

My plan has, I believe a 50% max. I actually went up to 39% for the last month or two to "catch up" for this year's max. We also have a 50% match on the first 6% that we contribute, effectively 3%.

From the Yahoo! site (http://planning.yahoo.com/rules3.html), this rule has me concerned:

Total employee and employer contributions are limited to the lesser of 25% of salary or $30,000.

I see that much of the info from the site is from 2002. Does anyone know if this rule has been changed?

Thanks
-murray

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Author: jbking Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48976 of 76387
Subject: Re: 401k Max Date: 12/16/2005 6:31 PM
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Greetings Murray,

Don't forget about the HCE rule...
http://www.401khelpcenter.com/mpower/feature_030702.html has details on that if you are unaware of it. http://www.investopedia.com/articles/retirement/04/111004.asp notes the figures for 2005 on that.

Regards,
JB

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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48979 of 76387
Subject: Re: 401k Max Date: 12/16/2005 11:55 PM
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Well, at least I don't have to worry about HCE, but I'm still confused what the rules are. From the Yahoo! sites:

The law now allows employers (but does not require them) to eliminate the 15 percent-of-salary limitation on contributions. So more people might be able to contribute the maximum dollar amount of $11,000 in 2002. That amount will march upward until it hits $15,000 in 2006.

and

Total employee and employer contributions are limited to the lesser of 25% of salary or $30,000

So which is it, $15k or $30k? In my situation, 25% will be less than $15k, so is 25% my limit?

-murray

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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48980 of 76387
Subject: Re: 401k Max Date: 12/17/2005 1:18 AM
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Murray, if you read the thread the different is explained.

Your maximum PRE-TAX contribution are limited to $15K in 2006. This does not include any employer contributions.

Total contribution - your pre-tax, your post-tax, and employer contributions - are limited to the 25% of salary or $30K whichever is less. I would imagine there's a "but not less than $15K" clause.

Btw, this is good to know, because my contribution + match will be 24% of my salary next year. < Whew > :)

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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48982 of 76387
Subject: Re: 401k Max Date: 12/17/2005 9:33 AM
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I would imagine there's a "but not less than $15K" clause.

That is essentially my question. Also, does the $15k limit include matching?

For example, if I contribute $15k of my own money and my employer kicks in 3%, I'd be at 31% of my annual salary.

Finally, what happens if you go over the limits?

-murray

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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48984 of 76387
Subject: Re: 401k Max Date: 12/17/2005 11:28 AM
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Also, does the $15k limit include matching?

No, I am entirely sure about that. That's on your contribution only.


Finally, what happens if you go over the limits?

Your payroll department shouldn't let you. If you exceed the limit the rest of the money should just show up in the paycheck instead for the last few years. Most plans probably have an option that say "if I go over $15K... 1) stop contributing, 2) contribute after-tax". I chose the former.

If you somehow got too much money got in there, they would have to refund it to you. But they should be better than that, feel free to ask them.


So I'm not sure where that 25% rule came from. The only thing I can find any reference to is the $15K pre-tax limit for you, plus a $5K catchup is over 50, and then a $44K total limit ($49K including catchup). There's also something in the $200K range, but I don't think you care about that :)


Heres two link with some good 2005 numbers:
http://www.401k.com/401k/pfp/rp/conlimit.htm
http://www.401khelpcenter.com/2005_limits.html

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48986 of 76387
Subject: Re: 401k Max Date: 12/17/2005 2:04 PM
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"I'm not sure where that 25% rule came from."

It's been quite a while and the rules may have changed. But that is what the pro's have posted. The rules that determine this limit are apparently complex and affect different plans differently. So the number that matters to you has to come from your plan administrator.

But if you really want to know what the rules say, track down W401K. Bill is an expert who advises employers on their 401K plans for a living (as well as a good Fool).

On what happens if you exceed the limits, in my experience plans administered by Vanguard will automatically cease taking deductions at exactly the limit to the penny. It's then up to you to figure out why your take home pay has increased and begin making aftertax contributions. (The effect is to lose employer's match in the interim assuming you have been maxing the match.) So better is to calculate your contributions so you max the plan with your last paycheck of the year.

Sometimes those covered by the highly compensated employees rules wind up over contributing. That's because the amount you can contribute at the beginning of the year is estimated based on anticipated employee participation rates. If they guess wrong, you can over contribute. Then they refund your excess payments early in the new year, and send you an amended W-2 causing you to pay taxes on those funds previously considered pretax. If you have already filed your tax return when the amended W-2 arrives, you have to file an amended return.

This can get messy. So try to plan ahead and avoid the hassles if you can.

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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 48988 of 76387
Subject: Re: 401k Max Date: 12/17/2005 3:05 PM
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By the OP's posting he's not an HCE (highly compensated employee) so he shouldn't have to worry about that.

It's possible there's a 25% rule, but since I can't find anything about it, I would think it's more likely that it's gone by the wayside.

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Author: 110intheshade Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 49010 of 76387
Subject: Re: 401k Max Date: 12/18/2005 4:43 PM
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Say you turn 50 in June, Do you need to wait those 6 months before putting in the "catch up" monies?

110

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 49011 of 76387
Subject: Re: 401k Max Date: 12/18/2005 7:14 PM
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>> Say you turn 50 in June, Do you need to wait those 6 months before putting in the "catch up" monies? <<

No. You just have to be at least age 50 by the end of the plan's year. Usually the plan year and the calendar year are the same, and where they are, you just have to turn 50 by the end of the year. You could turn 50 on 12/31/2005 and contribute the catchup money on 1/1/2005.

#29

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 49017 of 76387
Subject: Re: 401k Max Date: 12/19/2005 11:52 AM
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Total employee and employer contributions are limited to the lesser of 25% of salary or $30,000.

I'm not certain, but I think Yahoo's page is actually slow to correct this. IIRC, the Federal limits are now 100% of your salary or $40,000 (or something around that). The $40K includes your $15K pre-tax limit; company comtributions including match and profit sharing; and your post-tax contributions. I am not sure, but I do not think it includes catch-up contributions.

Acme

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