Employer contribution to 401k

[happygirl]

I know an employee can only contribute up to 16,500 per year to a 401k but is there a maximum that the employer can contribute? Maybe also 16,500? Thanks in advance!

[skydivingchic]

Yes, there is a limit to how much an employer can contribute. The total of all employee plus employer contributions must be less than the lesser of 100% of the employee's total pre-tax compensation or $49,000 for 2011.

[happygirl]

So if an employee makes 50,000, he could contribute 16,500 and the employer could contribute up to 32,5000 to make a total of 49,000?

[danieldroga]

Yeah, there is a limitation. And you have to deal with it.

[MonkeyMama]

Originally Posted by happygirl

So if an employee makes 50,000, he could contribute 16,500 and the employer could contribute up to 32,5000 to make a total of 49,000?

No - you can not add $49,000 to a 401k/match plan unless your income is $245,000. The limits used to be something like 20% income, flat. ($245,000 x 20% = $49,000). Probably where that comes from. The thing is, you can put 100% of your income in a 401k if your employer's plan allows it, but the match part is subject to more income limitations. At face value, you are limited to 13.26% of income for a match - if you max out 401k - but the truth is the calculations are pretty complex.

On top of that, every employer plan is going to have different rules and limitations.

[jpg7n16]

I wanna say the max you are allowed to contribute is the lessor of:

• 100% of income or
• $16,500

And the max your employer can contribute is the lessor of:

• 25% income or
• $49,000

Choosing a Retirement Plan: 401(k) Plan


Thus, the maximum that could be contributed to a 401k would be for an employee with a super high income (like MM discussed), and would be the $16,500 + 49,000 = 65,500.

[MonkeyMama]

Originally Posted by jpg7n16

Thus, the maximum that could be contributed to a 401k would be for an employee with a super high income (like MM discussed), and would be the $16,500 + 49,000 = 65,500.

Actually, an employer can contribute $49,000, but not if you put money in your 401k. The total combined (401k + employer contribution) is $49,000 max. Per employer/plan.

[happygirl]

So if I make 250,000, between myself and my employer, we can contribute up to, but not over, 49,000. Is that right?

Likewise, if I make 50,000, my employer and I can still contribute up to, but not over, 49,000? So 49,000 is the top limit regardless of whether the contributions come from the employee or the employer?

[Frugal]

Doesn't the employer ususally match the amount? Therefore, wouldn't the limit yearly for their contribution be similar to the threshold for individual contribution? Just my thoughts, not sure on this one! Never been able to contribute that much to a 401k myself!

[MonkeyMama]

Originally Posted by happygirl

So if I make 250,000, between myself and my employer, we can contribute up to, but not over, 49,000. Is that right?

Yes. For the year 2011. (Though if you are over 50, you get the catch up in addition. +$5500. Just to make it more complicated).

Originally Posted by happygirl

Likewise, if I make 50,000, my employer and I can still contribute up to, but not over, 49,000? So 49,000 is the top limit regardless of whether the contributions come from the employee or the employer?

If you make $50,000, you can put in $16,500. Your employer can match 25% of your income ($12,500). You won't have enough income to add $49,000 to your retirement account - just to be clear. How much your employer can actually put in can get pretty complex - but 25% is a vanilla answer that applies if there are no other plan restrictions. Of course, there could be restrictions on how much you can put in your 401k, too. By the letter of the tax code, you can put up to 100% of your income into a 401k plan (up to $16,500), but specific plans have varying rules and limitations - for various reasons.

Yes - $49,000 is the top limit whether the contributions are 100% employer, or some mix of employee/employer contributions.