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Having worked at my firm for 5 years I have always contributed the maximum allowed % (16%) at our firm and have recently made enough money to max out my contributions ($10000 last year) each year.

Now my firm has said I am in the "higher" paid bracket I am only allowed to contribute 7% of my paycheck - maximum.

My question is shouldn't I be allowed to contribute $10,500 this year regardless of my current salary. With this 7% rule I would need to make $150k to hit the $10,500 limit which is not going to happen.

Any thoughts or feedback would be appreciated.

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I suspect that what has happened is that you are now in the higher paid group of people(Those making $80,000/year or more) and that because of that you can only contribute 2% more than the those making under $80,000/year. This is part of a way to force those highly paid people from not abusing the advantages of a 401(k).

My tip: Find those in the lower bracket and get them to contribute more if you want to contribute more to your 401(k).

If you want a source here are all the gory details(This is called the ADP Test by the way): http://www.irs.gov/prod/bus_info/tax_pro/irm-part/part07/35951a.html#ss33

JB
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