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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: of 75340  
Subject: Re: 401k problem Date: 11/29/2006 4:48 PM
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I have never been told that lump sum contributions are not allowed by law.

I dunno, I thought 401K contributions *had* to be payroll deductions. Section 401(k) of the tax code is under the section on 'deferred compensation'. Its not really 'deferred compensation' if you get it and then return it.

Specifically it says the plan is one...
"under which a covered employee may elect to have the employer make payments as contributions to a trust under the plan on behalf of the employee, or to the employee directly in cash;"

So it seems employer has to make the contribution (on your behalf), not you (of course I would not pretend to know that there isn't other wording of technicalities that make this interpretation wrong).

Source:
http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000401----000-.html


From a practical perspective, 401K contributions aren't a tax 'deduction' from your income per say, its that they aren't even listed in your gross income to begin with (for income tax purposes - i.e. W2 box 1). Its supposed to be money you never got.

So if you were to make a 'lump sum' contribution, your employer would need to know to subtract that out of your box 1 total wages. If that *is* legal (not reporting income that they paid you, but you then 'returned'), its certainly would be quite a hassle.
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