What happens when you max out 401k?

[smokey0066]

I'm currently contributing the maximum allowed by my plan. I have slowly worked up to this level and I think I will be on track to hit the limit of 15k/yr well before the end of the year comes.

I'm around 12.5k now with my contribution + company match. When I hit 15k does the withdrawl automatically stop until next year? Do they continue to withdraw it for next years allowance? What happens? I guess I'm too lazy to get on the phone and sit on hold to find out. No one at work can help since everyone thinks I'm crazy for contributing so much.

Also I've been saving up for my 4k contribution into my roth ira which should be ready at the end of june for contribution into my fund. I'm happy to say so far things have been going as planned for me aside from my goal to start investing in stocks which I've decided to hold off on so I can possibly purchase a new car.

smokey

[safari]

The $15K limit only applies to your own contributions. The company match doesn't count toward that. If you're going to reach the allowable contribution limit before the end of the year, you will miss out on the employer contributions, so I would recommend reducing your contribution percentage to make sure you won't hit the $15,000 mark before December.

[smokey0066]

So the goal is the stay under the 15k limit through dec so I will continue to receive my measly match correct? My current match isnt much if you consider the amount i'm contributing. Its a nice bonus but if I were to miss out on if for december I wouldnt blink an eye to it. I think at my current contribution rate I might go over sometime in the nov/dec timeframe.

So that still leaves my question partly unanswered. What happens to my contribution that is over 15k?

[Apsmommy]

Your company is not supposed to take any more than that out, however, the chances are that they will continue to take it out since the paperwork nightmare never ends. Anyway, you will be refunded the money. It may take a few months, so if you have already filed your taxes you will have to file an amended return to pay taxes on that money. In other words, to save yourself and HR the hassle, please don't over pay.

[humandraydel]

Also, I believe the limit is $15,500 this year.

[MonkeyMama]

Yes, it is $15,500 this year.

I have no idea why the match would matter on when you contributed the money. At least on the many plans I work on it doesn't matter how it is contributed, match is just tabulated at the end of the year. I guess some companies may do it differently, but you would want to find out then.

Technically, once you hit $15,500, your employer should stop withholding it from your paycheck. However, it is so rare that employees do so, you may just fly under the radar and no one may notice you hit the max. If I were you I would keep track, and if they withheld too much, let them know ASAP. They can either fix your paycheck or fix it the following pay period. Waiting until next year can just create an accounting nightmare, so definitely keep an eye on it. They may be on the ball and what they really should do is just stop withholding the 401k amounts, and then they should resume them next year.

[tinapbeana]

I have no idea why the match would matter on when you contributed the money. At least on the many plans I work on it doesn't matter how it is contributed, match is just tabulated at the end of the year. I guess some companies may do it differently, but you would want to find out then.

My company match was always deposited every pay period based my contribution that pay period. I liked it, made it easy to DCA.

[bjl584]

My employer offers an option to contribute a certain dollar amount to our 401K each month as opposed to a percentage of gross. You may want to look into this so you can just set up your withdrawl to automatically contribute $1291.67 each month to your 401K. Then you don't have to worry about going over the $15500 limit before the end of the year.

[MonkeyMama]

My company match was always deposited every pay period based my contribution that pay period. I liked it, made it easy to DCA.

Man, you guys have nice companies. I have never seen that done and sounds like an accounting nightmare from my perspective. But maybe they have generous matches. (You know sometimes the match is reduced or taken away if you terminate during the year, etc. - which I guess is why mostly I have seen it figured at year-end. Those things get so dang complicated).

But certainly if when you make a contribution makes a difference to your match, use to your advantage.

The idea to take a set dollar amount every month is probably best. Every year you can check the limits and do that. On the other hand if you want to max it out early in the year isn't the worst. Say you get laid off or switch jobs, there is no guarantee you will get a 401k with a new job, or that you would have a waiting period to contribute, so something to keep in mind why it is better to contribute more earlier on.

[safari]

Man, you guys have nice companies. I have never seen that done and sounds like an accounting nightmare from my perspective. But maybe they have generous matches. (You know sometimes the match is reduced or taken away if you terminate during the year, etc. - which I guess is why mostly I have seen it figured at year-end. Those things get so dang complicated).

But certainly if when you make a contribution makes a difference to your match, use to your advantage.

The idea to take a set dollar amount every month is probably best. Every year you can check the limits and do that. On the other hand if you want to max it out early in the year isn't the worst. Say you get laid off or switch jobs, there is no guarantee you will get a 401k with a new job, or that you would have a waiting period to contribute, so something to keep in mind why it is better to contribute more earlier on.

My company also does its contributions with every paycheck, and several people who I talked to have the same system at their companies, too, so I assumed that's how all companies do that. For example, when i get a bonus check, my contribution to 401k gets deducted from it automatically, and the deposit to my 401k account will also include the company match. Here is an article that I found, which explains how it's possible to miss out on the company match if you reach the contribution limit before the end of the year: link.

[anonymous_saver]

What would I do once I max out my 401(k) and an IRA?

Well, I would start off with dancing around in circles and laughing to myself!!!


In all seriousness, the next step would be to get a brokerage account with a place like Vanguard. It's a taxable account, but is probably the next best thing you could do for saving for retirement. The fees are larger on brokerage accounts, but it's a solid choice.

[MonkeyMama]

Safari - that is tricky!!! (read the article - yeesh) There are so may different kind of plans you wouldn't even know. I actually audited plans in the past and work on a lot of plans now (granted for small business in the last few years) but seriously most of it is so beyond me, the rules are insane. SO you learn something new every day.

But basically there are 1000 ways these plans can be set up and so the lesson we learn here is read ALL The fine print. No 2 plans are ever the same.

& be happy when you get your match right away because it certainly is not always the case. My 2006 employer contribution will not be seen until September 2007. IT's the deadline basically and most small employers milk it for all its worth. I have one small employer client with about 100 employees who was depositing money (matching) in with every paycheck but we asked them to stop because the accounting was a nightmare. (if they were calculating it correctly & had a competent administrator it could have been okay - but good luck in this case). Big companies maybe have more resources/more of a need to do it on an ongoing basis though. More likely to get it right the first time I guess. In this particular case they are moving to the "September of next year method."

[Gruntina]

Safari - that is tricky!!! (read the article - yeesh) There are so may different kind of plans you wouldn't even know. I actually audited plans in the past and work on a lot of plans now (granted for small business in the last few years) but seriously most of it is so beyond me, the rules are insane. SO you learn something new every day.

But basically there are 1000 ways these plans can be set up and so the lesson we learn here is read ALL The fine print. No 2 plans are ever the same.

& be happy when you get your match right away because it certainly is not always the case. My 2006 employer contribution will not be seen until September 2007. IT's the deadline basically and most small employers milk it for all its worth. I have one small employer client with about 100 employees who was depositing money (matching) in with every paycheck but we asked them to stop because the accounting was a nightmare. (if they were calculating it correctly & had a competent administrator it could have been okay - but good luck in this case). Big companies maybe have more resources/more of a need to do it on an ongoing basis though. More likely to get it right the first time I guess. In this particular case they are moving to the "September of next year method."

Just my 2 cents - With today's technologies and calculations software programs.. It shouldn't be too hard for companies, small or large, to figure out the contribution at each paycycle.

[MonkeyMama]

LOL.

Let me put it this way, most of my clients have their receptionists (or their kids) doing payroll in their spare time. No way no how.

Gosh if my clients could calculate their own matches I would probably be out of a job.

But we get paid the big bucks because they don't have the manpower for much but the most basic of accounting functions. Small business can be a very different animal. For bigger companies, they will have a cost savings by holding off and doing the match once a year, which is quite common. THey should be able to figure it out yes, but it also means more tracking/work/reconciling than one lump funding at the end of the year.

[Gruntina]

LOL.

Let me put it this way, most of my clients have their receptionists (or their kids) doing payroll in their spare time. No way no how.

Gosh if my clients could calculate their own matches I would probably be out of a job.

But we get paid the big bucks because they don't have the manpower for much but the most basic of accounting functions. Small business can be a very different animal. For bigger companies, they will have a cost savings by holding off and doing the match once a year, which is quite common. THey should be able to figure it out yes, but it also means more tracking/work/reconciling than one lump funding at the end of the year.

Interesting... I work for a world wide company and we just log into our account for 401k via Fidelity anytime to check the most current status and we also use an online program for payroll at our company's intranet service. It has always be current with the exact figures to the cent.

I guess I need to count my blessings to have these luxeries. I do work in the HR department and have experiences in some of the different perspectives of how differently things are done.