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Due to a cross-country move, my wife is now on her third job this fiscal year (the trailing two weeks at our previous residence, eight months here, and now two months at the job she wanted in the first place :-). Each of these employers has a 401(k). It's the middle one that I'm concerned about.

When she started, she was not eligible for the 401(k) for the first two paychecks. While working, she received bonus checks for taking on pager duty, which checks had social security, medicare, and state disability taken out, but not income taxes or 401(k) contributions. Lastly, her final check had all taxes taken out, but not 401(k) contributions.

What are our options (from the IRS's standpoint) for maximizing her contributions this year? This is somewhere in the range of $1k of contributions which haven't been made. [I've suggested that if she can't put them in a 401(k), perhaps she should put $750 in a non-deferred investment :-).]

Also, are the contribution limits based on your yearly income, or in your instantaneous income? If you aren't eligible for the first quarter, say, can you raise your contributions for the rest of the year, or do you just lose the tax deferral for income during that quarter?

Thanks,
scott
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Scott asks:

<<Due to a cross-country move, my wife is now on her third job this fiscal year (the trailing two weeks at our previous residence, eight months here, and now two months at the job she wanted in the first place :-). Each of these employers has a 401(k). It's the middle one that I'm concerned about.

When she started, she was not eligible for the 401(k) for the first two paychecks. While working, she received bonus checks for taking on pager duty, which checks had social security, medicare, and state disability taken out, but not income taxes or 401(k) contributions. Lastly, her final check had all taxes taken out, but not 401(k) contributions.

What are our options (from the IRS's standpoint) for maximizing her contributions this year? This is somewhere in the range of $1k of contributions which haven't been made. [I've suggested that if she can't put them in a 401(k), perhaps she should put $750 in a non-deferred investment :-).]

Also, are the contribution limits based on your yearly income, or in your instantaneous income? If you aren't eligible for the first quarter, say, can you raise your contributions for the rest of the year, or do you just lose the tax deferral for income during that quarter?>>


From a 401k standpoint, the total of all her contributions to all 401k plans may not exceed the lesser of 25% of her total annual compensation or $10K. The bonus checks she received count as part of her compensation for the year even if no 401k contribution was deducted from that pay. It's the pay for the entire year that counts, not that of any specific quarter or when she became eligible to participate.

Regards….Pixy
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Unfortunately, you can't contribute extra money to a 401k, to catch-up, for example, beyond the maximum % your employer will take out of your paycheck.

For 1998, you can contribute a combined total of $10,000, regardless of how many employers you have, previous or current. I believe that this is also capped at 17% of income, which ever is less. It makes no difference how this money is contributed throughout the year. OTOH, I also believe that your employer is free to contribute as much as they want, within the rules of their plan.

If you can't catch up, might I suggest a Roth IRA, since you intended to use this $1k for retirement.

Zev
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TMFPixy wrote:
<<It's the pay for the entire year that counts, not that of any specific quarter or when she became eligible to participate.>>

That's for the entire year's contribution - but, can you raise your per-paycheck contribution to make up lost time?

Say you weren't eligible for the plan until July, and your annual cap will be $10k. Can you then contribute $1666/mo, regardless of what your income is that month? Or will your monthly income restrict your monthly contribution?

[Her new employer has indicated that they can't allow her to contribute more to make up for the shortfall with her previous employer. She's somewhat averse to contacting her previous employer's benefits department - they're having a "rats leaving a sinking ship" problem, and nobody gives a damn anymore :-(.]

Thanks,
scott
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Zev sez:.

<<For 1998, you can contribute a combined total of $10,000, regardless of how many employers you have, previous or current. I believe that this is also capped at 17% of income, which ever is less. It makes no difference how this money is contributed throughout the year. OTOH, I also believe that your employer is free to contribute as much as they want, within the rules of their plan. >>

Actually, the participant is limited to 25% (not 17%) of pay or $10K, whichever is less. Any contribution made by the employer reduces the 25% maximum the participant may contribute. Thus, if the employer kicks in 8% of pay, the participant is limited to the lesser of 17% of pay or $10K. Additionally, the contributions of both may not exceed the lesser of 25% of compensation or $30K.

Regards….Pixy
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Scott writes:

TMFPixy wrote:
<<It's the pay for the entire year that counts, not that of any specific quarter or when she became eligible to participate.>>

That's for the entire year's contribution - but, can you raise your per-paycheck contribution to make up lost time?

Say you weren't eligible for the plan until July, and your annual cap will be $10k. Can you then contribute $1666/mo, regardless of what your income is that month? Or will your monthly income restrict your monthly contribution?

[Her new employer has indicated that they can't allow her to contribute more to make up for the shortfall with her previous employer. She's somewhat averse to contacting her previous employer's benefits department - they're having a "rats leaving a sinking ship" problem, and nobody gives a damn anymore :-(.]


Technically, she could make a contribution in a lump sum to a 401k plan if the employer's administrative procedures allowed it. She cannot, though, contribute more to her current employer's 401k plan than 25% of what she will earn at that employer for the year. If she works three months in 1998 and earns $12K, her maximum contribution for this year in that plan would be $3K. That could be contributed on the first day she participates in the plan, on the last day of this year, or periodically over the three months. Despite how it's contributed, she cannot exceed 25% of her pay at that employer for the year.

As to a contribution retroactively to her former employer's plan -- Fat chance. She's gone and is no longer a participant. That plan can no longer accept a contribution for her account.

Regards…..Pixy
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